-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Whd7c3tbnQ2NZ6IReQJaT87ILkiX1O+yl6cPTW1B3jJ6IwIjbd5XxyarCGFPln6O qAaVIoqpJdotzmXXhb7kDg== 0000914039-00-000099.txt : 20000320 0000914039-00-000099.hdr.sgml : 20000320 ACCESSION NUMBER: 0000914039-00-000099 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000317 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRANSPRO INC CENTRAL INDEX KEY: 0000948844 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLE PARTS & ACCESSORIES [3714] IRS NUMBER: 341807383 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-13894 FILM NUMBER: 572829 BUSINESS ADDRESS: STREET 1: 100 GANDO DR CITY: NEW HAVEN STATE: CT ZIP: 06513 BUSINESS PHONE: 2034016450 MAIL ADDRESS: STREET 1: 100 GANDO DR CITY: NEW HAVEN STATE: CT ZIP: 06513 10-K 1 10-K 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-13894 TRANSPRO, INC. (Exact name of Registrant as specified in its charter) DELAWARE 34-1807383 (State or other jurisdiction (IRS Employer Identification No.) of incorporation or organization) 100 Gando Drive, New Haven, Connecticut 06513 (Address of principal executive offices, including zip code) (203) 401-6450 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12 (b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED ------------------- ----------------------------------------- Common Stock, $.01 Par Value New York Stock Exchange (together with associated Preferred Stock purchase rights)
Securities registered pursuant to Section 12 (g) of the Act: NONE Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of voting and non-voting common stock held by non-affiliates of the Registrant at March 1, 2000 was $36,697,676. On that date, there were 6,597,335 outstanding shares of the Registrant's common stock. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Annual Report to stockholders for the fiscal year ended December 31, 1999 are incorporated by reference into Part II hereof. Portions of the Proxy Statement for the 2000 Annual Meeting of Stockholders are incorporated by reference into Part III of this report. Exhibit Index is on pages 17 through 19 of this report. =============================================================================== 2 TRANSPRO, INC. INDEX TO ANNUAL REPORT ON FORM 10-K YEAR ENDED DECEMBER 31, 1999
PAGE PART I Item 1. Business 3 Item 2. Properties 12 Item 3. Legal Proceedings 13 Item 4. Submission of Matters to a Vote of Security Holders 13 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder 14 Matters Item 6. Selected Financial Data 14 Item 7. Management's Discussion and Analysis of Financial Condition 14 and Results of Operations Item 7A. Quantitative and Qualitative Disclosures about Market Risk 14 Item 8. Financial Statements and Supplementary Data 15 Item 9. Changes in and Disagreements with Accountants on Accounting 16 and Financial Disclosure PART III Item 10. Directors and Executive Officers of the Registrant 16 Item 11. Executive Compensation 16 Item 12. Security Ownership of Certain Beneficial Owners and Management 17 Item 13. Certain Relationships and Related Transactions 17 PART IV Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K 17 Signatures 20
2 3 PART I ITEM 1. BUSINESS GENERAL DEVELOPMENT OF BUSINESS On September 29, 1995, TransPro, Inc. (the "Company") completed a series of transactions pursuant to which the Company's sole stockholder, Allen Telecom Inc. ("Allen", formerly The Allen Group Inc.) contributed (the "Contribution") to the Company substantially all of the assets and liabilities of Allen's original equipment radiator and fabricated metal products business (the "Automotive and Truck Products Business"), as well as Allen's 50% ownership interest in GO/DAN Industries ("GDI"), then a 50/50 joint venture partnership between affiliates of Allen and Handy & Harman that produces replacement radiators and other heat transfer products for the automotive and truck aftermarkets. Immediately thereafter, Allen caused GDI to redeem the outstanding ownership interest in GDI not already owned by Allen (the "GDI Redemption"); thereby making GDI an indirect wholly owned partnership of the Company. Effective April 1, 1999, GDI changed its organizational structure from a partnership to a corporation. In addition, Allen effected the distribution (the "Distribution") of 100% of the outstanding shares of the Company's common stock to the holders of record of Allen's common stock as of the close of business on September 29, 1995 (the "Record Date"). The Distribution was made on the basis of one share of the Company's common stock for every four shares of Allen's common stock outstanding on the Record Date, which resulted in the distribution of an aggregate of 6,621,349 shares of TransPro common stock. As a result of the Contribution, the Distribution, and the GDI Redemption, TransPro now owns the Automotive and Truck Products Business and 100% of GDI, and is an independent publicly traded company. The Company operates in three business segments, Aftermarket Heating and Cooling Systems, Original Equipment Manufacturer ("OEM") Heat Transfer Systems and Specialty Metal Fabrication. The Company is comprised of five operating divisions that supply products and services to the automotive and truck aftermarkets and original equipment manufacturers of trucks, vans, telecommunications equipment and other industrial products. The Aftermarket Heating and Cooling Systems segment includes the Company's GO/DAN INDUSTRIES division ("GDI"), a producer of replacement radiators and other heat transfer products for the automotive and truck aftermarkets; the Company's EVAP, Inc. ("EVAP") division, a manufacturer and distributor of replacement automotive air conditioning parts for the automotive aftermarket; and the Company's A/C Plus, Inc. ("A/C Plus") division, a re-manufacturer of air conditioning compressors primarily for import applications in the automotive aftermarket. The OEM Heat Transfer Systems segment includes the Company's G&O Manufacturing Company division ("G&O") which produces and supplies radiators, charge air coolers, and engine cooling system components for OEMs of heavy duty trucks and industrial and off-highway equipment. The Specialty Metal Fabrication segment includes the Company's Crown divisions ("Crown") which install specialized interiors in utility trucks and vans for major commercial fleets and designs, manufactures and assembles fabricated metal parts for light truck, telecommunications and other industrial customers. The Company's origins date back to 1915 when G&O commenced operations in New Haven, Connecticut as a manufacturer of radiators for custom built automobiles, fire engines and original equipment radiators for Ford Motor Company ("Ford"). Allen acquired G&O in 1970 as part of its strategy to become a broad-based automotive supplier. Crown commenced operations in 1947 and was acquired by Allen in 1967 as part of the same business strategy. GDI was formed in 1990 when Allen contributed a portion of its G&O division and other assets, which together represented all of Allen's aftermarket radiator business, and Handy & Harman contributed substantially all of the assets of its then wholly owned subsidiaries, Daniel Radiator Corporation, Jackson Industries, Inc., Lexington Tube Co., Inc. and US Auto Radiator Manufacturing Corporation, to form a 50/50 joint venture partnership. The Company added replacement automotive air conditioning condensers to its aftermarket product line with the acquisition of substantially all of the assets, and the assumption of certain liabilities, of Rahn Industries effective August 1996. In December 1997, the Company acquired substantially all of the assets and assumed certain liabilities of Vehicle Management Systems Inc. ("VMS"), a small Canadian van upfitter, to extend its geographic coverage for vehicle conversions into Canada. The Company added replacement automotive air conditioning parts to its aftermarket product line with the acquisition of 3 4 the outstanding stock of EVAP in a purchase transaction effective August 1, 1998. The Company added re-manufactured automotive air conditioning compressors to its aftermarket product line with the acquisition of the outstanding stock of A/C Plus in a purchase transaction effective February 1, 1999. The Company is concentrating on exploring strategic alternatives for our Specialty Metal Fabrication business. As a result of the significant improvements over the past three years at this business, we believe that now is an opportune time to evaluate our options for this business and improve our ability to fund the growth in the Aftermarket Heating and Cooling Systems segment. 4 5 DESCRIPTION OF BUSINESS MARKETS The automotive and heavy truck parts industries target two distinct markets, the aftermarket and the OEM market. The products and services used to maintain and repair automobiles, vans, light trucks and heavy trucks, as well as accessories not supplied with such vehicles when manufactured, form the respective automotive and heavy truck aftermarkets. The manufacture of individual component parts for use in the original equipment manufacturing process of automobiles, vans and light trucks forms the automotive OEM market and the manufacture of individual components for use in the original equipment manufacturing process of heavy trucks forms the heavy truck OEM market. The Company believes that in recent years demand for replacement parts and supplies in both the automotive and heavy truck aftermarkets has increased as both individuals and commercial fleet operators are driving more and keeping their vehicles longer. The Company sells its products and services principally to the automotive and heavy truck aftermarkets, as well as the heavy truck OEM market. The Company also sells its automotive products to OEM's of off-highway and transportation equipment and other industrial customers. The Company also manufactures fabricated enclosures and cabinetry for the OEM telecommunications industry. PRINCIPAL PRODUCTS AND SERVICES The Company designs, manufactures and markets radiators, heater cores, air conditioning parts (including condensers, compressors, accumulators and evaporators) and other heat transfer products for the automotive aftermarket. In addition, the Company manufactures and distributes radiators, automotive air conditioning compressors and replacement parts and other specialty heat exchangers for OEMs of heavy trucks and industrial and off-highway equipment and the heavy truck aftermarket. The Company also manufactures and installs specialized interiors for utility trucks and vehicles for major commercial fleets and designs, manufactures and assembles fabricated metal products for telecommunications and other industrial customers. A description of the particular products manufactured and the services performed by the Company in each of its market segments is set forth below. AFTERMARKET HEATING AND COOLING SYSTEMS. GDI Through GDI, the Company provides one of the most extensive product ranges of high-quality radiators, radiator cores, heater cores and air conditioning condensers to the automotive and heavy truck aftermarkets. The Company's primary radiator and heater manufacturing facility in Nuevo Laredo, Mexico is ISO-9002 certified, which is an internationally recognized verification system for quality management. In addition to its standard models, the Company can produce and deliver special orders of such products typically within 24 hours. The purpose of a radiator is to cool the engine. A radiator acts as a heat exchanger, removing heat from engine coolant as it passes through the radiator. The construction of a radiator usually consists of: the radiator core, which consists of coolant-carrying tubes and a large cooling area; a receiving (inlet) tank; a dispensing (outlet) tank; and side columns. In operation, coolant is pumped from the engine to the inlet tank where it spreads over the tops of the tubes. As the engine coolant passes through the tubes, it loses its heat to the air stream through the fins connected to the tubes. After passing through the tubes, the reduced temperature coolant enters the outlet tank and is then re-circulated through the engine. Complete Radiators. The Company's lines of complete radiators are produced for automobile and light and heavy truck applications and consist of more than 700 models, which are able to service approximately 90% of the automobiles in the United States. The Company has established itself as an industry leader with its well-recognized line of Ready-Rad(R) radiators. The Ready-Rad(R) Plus line with adaptable fittings has become popular because of its ability to fit the requirements of a broad line of vehicles, enabling distributors to service a larger number of vehicles with lower inventory levels. 5 6 The Company introduced its Ready Rad(R) Heatbuster ("Heatbuster") line of complete radiators in 1994. This line of replacement radiators is specially designed to provide approximately 20% more cooling capability than a standard radiator. The Heatbuster line is an ideal replacement radiator for vehicles, which are used, for towing, hauling, plowing, or off-highway purposes, and as a result, it has been particularly popular in the growing light truck market of the automotive fleet. Radiator Cores. A radiator core is the largest and most expensive component of a complete radiator. The Company's Ready-Core(R) line consists of 2,500 models of radiator cores for automobiles and light trucks. Given the wide range of cores required by today's automobile and truck fleet, there are many times when a specific core is not readily available. In these cases, the Company can produce a new core, on demand, within several hours. The Company is able to provide same day service to virtually the entire United States using its 12, strategically positioned, regional manufacturing plants. Industrial cores are heavy-duty units, which are constructed of extremely durable components in order to meet the demands of the commercial marketplace. The Company produces approximately 13,000 models of industrial cores, and these products serve many different needs in a variety of markets. In general, an industrial core is much larger than an automotive core and typically sells for three to four times the price of an automotive core. Heater Cores. The Company produces more than 350 different heater core models for domestic and foreign cars and trucks, which cover the requirements for more than 95% of today's automotive fleet. A heater core is part of a vehicle's heater system through which heated coolant from the engine cooling system flows. The warm air generated as the liquid flows through the heater core is then propelled into the vehicle's passenger compartment by a fan. The Company's Ready-Aire(R) line of heater cores is recognized as an industry leader and its models utilize both cellular and tubular technology. Traditional heater cores utilize folded metal cellular construction to transport coolant through the unit, while the more modern models transport coolant through tubes. The Company introduced its tubular CT Ready-Aire(R) line of heater cores in 1988, and its CT heater cores now account for approximately 20% of the Company's total heater core sales. Radiator Parts and Supplies. The Company sells radiator shop supplies and consumable products used by its customers in the process of radiator repairs. The Company's extensive line includes radiator parts, small hand tools and equipment, solders and fluxes. The Company is one of the largest domestic suppliers of stamped metal radiator parts, supplying these parts to regional core manufacturers throughout the United States. Air Conditioning Condensers. Automotive air conditioning condensers were added to the GDI product line in 1996 through the acquisition of Rahn Industries, Inc., an aftermarket manufacturer and supplier of automotive air conditioning condensers. Air conditioning condensers are a component of a vehicle's air conditioning system designed to convert the air conditioner refrigerant from a high-pressure gas to a high-pressure liquid by passing it through the air-cooled condenser. GDI distributes this product under the Ready-Aire(R) brand and has fully integrated this product into its distribution network. GDI catalogs more than 1,000 condenser part numbers. EVAP AND A/C PLUS Through EVAP and A/C Plus, the Company provides one of the most extensive catalogs of replacement automotive air conditioning parts and compressors to the automotive and truck aftermarkets. Compressors. Through its A/C Plus division, the Company re-manufactures replacement air conditioning compressors for import applications in the automotive and truck aftermarkets. The Company also sells air conditioning compressors for replacement in both domestic and import automotive and truck aftermarkets. The compressor is designed to compress low-pressure vapor refrigerant, which it draws from the evaporator into a high-pressure gas. This gas is then pumped to the condenser. 6 7 Accumulators. Accumulators act as a reservoir that prevents liquid refrigerant from reaching the compressor. The accumulator uses a drying agent to remove moisture from the system and a filter screen to trap any solid contaminants. Evaporators. Automotive air conditioning evaporators are designed to remove heat from the passenger compartment. The core is generally located under the dash or adjacent to the fire wall and functions as a heat exchanger by passing low pressure liquid refrigerant through its passageways and forcing warm air from the passenger compartment over the core. The refrigerant becomes a low-pressure vapor and is then re-compressed by the compressor and re-circulated. Air Conditioning Parts and Supplies. The Company sells an extensive line of other air conditioning parts and supplies through EVAP. These other component parts include driers, hose and tube assemblies, blowers and fan clutches. SPECIALTY METAL FABRICATION The Company's Specialty Metal Fabrication segment, through its Crown Divisions, is currently comprised of two interrelated operations. The principal products produced and services performed by each of these operations are set forth below. Prior to December 1997, the Specialty Metal Fabrication segment also performed truck cab conversions for Ford. Vehicle Conversions. The Company is one of the leaders in the installation of vehicle conversions in utility trucks and vans for major commercial fleets such as AT&T, Broadband, ADT, Airborne Express, General Electric and the regional telephone companies. The Company's vehicle conversion installation facilities are strategically located near each of the major production facilities for utility trucks and vans of Ford, Chrysler and GM. The Company offers its customers a full range of customizing options ranging from the installation of ladder racks, specialized bins and shelves and other components for convenient and safe storage, to decaling the outside of the vehicle. Each interior is installed according to the customer's specifications, based upon various design and equipment options offered by the Company. Much of the specialized equipment installed by the Company in its conversion business is also manufactured by the Company. During 1997 the Company, under a short-term contract with Ford, up-fit approximately 10,000 Aerostar and Windstar mini vans for the US Postal Service. The modifications were completed at the Company's Lorain, Ohio and St. Charles, Missouri facilities. In December 1997, the Company acquired substantially all of the assets of a small Canadian van up-fitter to provide a strategic location in proximity to Ford's Missassauga, Ontario, Canada plant and greater access to the Canadian market. The Company enjoys a reputation in the industry for offering new and innovative high quality products and on-time delivery. For example, the Company introduced in the early 1990's its exclusive Slide-Down(TM) ladder rack, which enables service technicians to easily load and unload heavy ladders from the top of a vehicle with the reduced risk of back injury and strain. In 1997, the Company introduced a new, easily removable storage system for mini-vans called Slide-Lock(TM), which offers users the ability to switch back and forth between a passenger van and a service van within minutes. In 1999, the Company introduced the vehicle conversion system (patent pending) for law enforcement vehicles. The Company is continually seeking to capitalize on its reputation by marketing these innovations to the automotive companies as value-added factory programs and options. Fabricated Metal Products. Certain of the fabricated metal products manufactured by the Company are used in its own vehicle conversion business. In addition to vehicle conversion products, the Company also produces fabricated metal components for telephone switching equipment, wireless communications equipment, stationary rotary air compressors and heavy-duty battery boxes. The Company designs, manufactures and assembles over 400 different fabricated metal parts, including vehicle conversion parts and high tolerance cabinets for telecommunications and other industrial customers such as, Lucent Technologies, Alcatel and East Penn. During 1998, the Company opened a state-of-the-art metal fabrication facility in Plano, Texas to service the rapidly growing telecommunications industry in that area. The Plano, Texas facility is ISO-9002 certified. The Company's metal fabrication business is principally 7 8 conducted out of its Wooster, Ohio, Thomaston, Georgia and Plano, Texas manufacturing facilities. The Company focuses on the production of large, complex parts that typically require greater engineering and more sophisticated production techniques than traditional high volume, undifferentiated products. The Company's Wooster, Ohio facility is currently ISO-9001 and QS-9000 certified. Truck Cab Conversions. Prior to December 1997, the Company produced a four-door pickup truck cab for Ford's F-Series Truck (the "Crew Cab") and modified rear wheel fender assemblies to accommodate a dual rear wheel axle ("DRWs"). The Crew Cab was produced by the Company utilizing an assembly line production process in which various stamped components were assembled using certain welding techniques. In much the same fashion, the Company produced DRWs in order to provide adequate space for the additional tire on each side of the rear wheel axle assembly. Prior to December 1997, the Company was the exclusive supplier of Crew Cabs and DRWs to Ford, and had provided such products to Ford for 30 years and 20 years, respectively, excluding a brief period from 1980 to 1982 when Ford did not offer either option with its F-Series Pickup Trucks. Ford moved the manufacture of Crew Cabs and DRWs in-house in late 1997. The Company's Crew Cab and DRW production facility in Louisville, Kentucky was closed in December 1997. OEM HEAT TRANSFER SYSTEMS Through its G&O Division, the Company designs, manufactures and markets radiators and charge air coolers to OEMs of heavy duty trucks, buses, as well as, industrial and off-highway equipment such as generator sets, construction vehicles, railroad locomotives and military equipment. The Company's Jackson, Mississippi production facility is ISO 9002 certified and expects to attain QS-9000 quality certification in 2000. Radiators. The Company custom designs, manufactures and sells approximately 400 different models of radiators, which are specifically designed and engineered to meet customer specifications. The Company's radiators are specifically engineered to withstand a variety of demanding customer applications. The Company's radiators are sold under the widely-recognized Ultra-Fused(R) brand name utilizing welded tube-to-header core construction and are specifically engineered to meet customer specifications to withstand a variety of demanding customer applications. Charge Air Coolers. The Company offers its OEM customers approximately 200 different models of aluminum charge air coolers. A charge air cooler is a device that is used to decrease the temperature of the turbo that is used by the engine in its combustion process, which in turn improves the operating efficiency of the engine and lowers its emission levels. The Company believes that the demand for charge air coolers will continue to increase as the Company's customers face increasing pressure to produce vehicles and equipment that are more fuel efficient and less polluting. In 1999, the Company obtained a U.S. Patent relating to its proprietary Ultra-Seal grommetted charge air cooler. This product offers significant improvements in performance and reliability and exceeds current industry guidelines for durability. G&O's traditional heavy-duty on-highway (class 8) truck market has become increasingly competitive and its share of this market has been reduced. The Company believes there are opportunities to expand into the specialty vehicle marketplace, which is not as well served as the traditional class 8 truck market. FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS, EXPORT SALES AND DOMESTIC AND FOREIGN OPERATIONS The Company operates under three business segments, Aftermarket Heating and Cooling Systems, OEM Heat Transfer Systems and Specialty Metal Fabrication. Applicable segment information appears in Note 3 of the Notes to Consolidated Financial Statements contained in the Registrant's 1999 Annual Report to Stockholders, certain portions of which are included in Item 8 of this Report. All such information is incorporated herein by reference. Export sales from North America were below 10% in each of the years reported. The Company has a manufacturing facility in Mexico and acquired a vehicle conversion facility in Canada in December 1997. During 1999 and 1998, the Company 8 9 had $5.1 million and $4.8 million in sales in Mexico, respectively. Sales in Canada aggregated $4.3 million and $1.4 million in 1999 and 1998, respectively. CUSTOMERS The Company sells its products and services to a wide variety and large number of industrial and other commercial customers. The Company sells its Aftermarket replacement radiators, air conditioning replacement parts and supplies, and other heat transfer products to national retailers of aftermarket automotive products, such as AutoZone, Pep Boys, warehouse distributors, radiator shops, parts jobbers and, to a lesser extent, OEMs. The Company supplies OEM heat transfer systems, including radiators, charge air coolers and cooling modules, to OEMs of heavy duty trucks, such as PACCAR and Mack, and OEMs of industrial and off-highway equipment, such as Cummins Power Generation, AM General and Oshkosh Truck Corporation. Principal customers of the Company's vehicle conversion products and services include operators of large commercial fleets such as Sears, General Electric and Airborne Express. The Company sells its fabricated metal components to telecommunications companies, such as Lucent Technologies and Alcatel. The Company's largest customer during 1999 and 1998 was AutoZone, in our Aftermarket Heating and Cooling Systems segment. AutoZone accounted for approximately 12% and 11% of net sales for 1999 and 1998, respectively. The Company's largest customer during 1997 was Ford, in our Specialty Metal Fabrication segment, which accounted for approximately 27% of the Company's 1997 net sales. The 1997 sales to Ford include Crew Cab and Dual Rear Wheel ("DRW") components and up-fitted vans destined for the US Postal Service. In 1999, 1998 and 1997, the Company had no other customers who individually accounted for greater than 10% of the Company's net sales. SALES AND MARKETING The Company maintains a separate sales and marketing department at each of its principal operating units. By focusing its sales effort at the operating unit level, the Company enables its sales staff to develop a thorough understanding of such unit's technical and production capabilities and of the overall market in which such unit operates. The Company has approximately 280 individuals involved in sales and marketing efforts. GDI's sales and marketing efforts are under the direction of GDI's Executive Vice President who oversees the Vice President of Marketing, the Vice President of National Account Sales and the National Sales Manager. The National Sales Manager is responsible for sales to radiator shops and traditional wholesale distributors through the Company's branches and agencies. GDI also employs several marketing specialists who report to the Vice President of Marketing and develop, implement and monitor GDI's various marketing and advertising programs. As part of its current marketing efforts, GDI is focusing on increasing its sales to the fastest growing segments of the automotive aftermarket. The Vice President of National Account Sales is responsible for sales to retailers and auto parts warehouses. GDI also uses independent sales representatives to aid in its outside sales efforts in these channels. EVAP has an internal sales and marketing staff consisting of a Vice President of Sales and Marketing with staff that serves its existing customer base and seeks new customers. EVAP also utilizes independent sales representatives to aid in its outside sales efforts. At G&O, the Company has an in-house sales management staff that is responsible for growing the business, servicing existing customers and identifying new marketing opportunities. These individuals and in-house engineering specialists, work in close consultation with the engineering staff of G&O's customers in order to provide the technical expertise and advice needed in the development stage of new customer products. In addition, G&O's engineers work closely with truck engine OEMs, such as Cummins Engine and Detroit Diesel, during the early stages of new product development and design. G&O has historically focused on sales of its products to domestic OEMs of heavy-duty trucks and industrial equipment. In recent years, G&O has expanded its focus to include all highway and specialty vehicle applications. 9 10 In the vehicle conversion portion of its business, the Company's Crown Divisions employ direct salespersons dedicated to servicing the national fleet and leasing companies, as well as, truck and van OEMs such as Ford, GM and Chrysler as well as independent sales representatives who manage the sales effort to the over 200 vehicle dealer/distributors nationwide. In 1997, the Company expanded direct fleet coverage to develop its West Coast opportunities and support distribution warehousing in Los Angeles, California and Dallas, Texas. In addition, the Company employs several direct salespersons and utilizes an independent sales representative force to service the telecommunications industry and other industrial buyers of fabricated metal products and value added assemblies. COMPETITION The Company faces significant competition within each of the markets in which it operates. In its Aftermarket Heating and Cooling Systems product lines, the Company believes that it is among the major manufacturers and that competition is widely distributed. The Company competes with the national producers of heat transfer products, such as Modine Manufacturing ("Modine"), the internal operations of OEMs and, to a lesser extent, local and regional manufacturers. The Company's primary competition in the air conditioning replacement parts business includes the Four Seasons, a division of Standard Motor Products, as well as numerous regional operators. The Company believes it can utilize its established distribution system to expand its air conditioning parts business nationally. The Company's principal methods of competition include product design, performance, price, service, warranty, product availability and timely delivery. With respect to its OEM Heat Transfer Systems segment, the Company competes with national producers of heat transfer products, such as Modine, Valeo Engine Cooling Systems and Behr GmbH & Co. The Company principally competes for new business both at the beginning of the development phase or offering of a new model and upon the redesign of existing models used by its major customers. New model development generally begins two to three years prior to the marketing of the vehicle to the public. Once a producer has been designated to supply components to a new program, an OEM will generally continue to purchase those components from the designated producer for the life of the program. Competition in the vehicle conversion business is widely distributed and the Company competes with numerous regional operators. In the fabricated enclosure market, the Company competes with numerous regional fabricators and competition is widely distributed. The Company's principal methods of competition in this market include product design, quality and timely delivery. Leadership in the vehicle conversion business largely relies on close proximity to factory assembly plants, maintenance of quality standards to retain authorized factory ship through capability, and an ability to adapt capacity to meet seasonal demands and satisfy customer delivery requirements. INTELLECTUAL PROPERTY The Company owns a number of foreign and US patents and trademarks. The patents expire on various dates from 2009 to 2019. In general, the Company's patents cover certain of its radiator, charge air cooler and air conditioning accumulator manufacturing processes. The Company has entered into licensing and other agreements with respect to certain patents, trademarks and manufacturing processes it uses in the operation of its business. The Company believes that it owns or has rights to all patents and other technology necessary for the operation of its business. The Company does not consider any single patent or trademark or group of patents or trademarks to be material to its business as a whole. RAW MATERIALS AND SUPPLIERS The principal raw materials used by the Company in its Aftermarket Heating and Cooling Systems and OEM Heat Transfer Systems product lines are copper and brass. The principal raw material used in the Company's specialty metal fabrication business is steel. Although copper, brass and steel and other materials are available from a number of 10 11 vendors, the Company has chosen to concentrate its sources with a limited number of long-term suppliers. The Company believes this strategy results in purchasing and operating economies. Outokumpu, a Swedish corporation, supplied the Company with approximately 90% of its copper and brass requirements in 1999, 1998, and 1997. The Company believes its sources for raw steel materials are very reliable and adequate for its needs. The Company has not experienced any significant supply problems in its operations and does not anticipate any significant supply problems in the foreseeable future. The Company typically executes purchase orders for its anticipated copper and brass requirements approximately three to six months prior to the actual delivery date. The purchase price for such copper and brass is established at the time orders are placed by the Company and not at the time of delivery. Copper prices had been trending upward through mid-year 1997 at which time a steady decline began which continued through the end of 1998. Prices began to rise during the middle of 1999 and recently began to level off. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" - Item 7. BACKLOG The Company's backlog was approximately $10.3 million at December 31, 1999 compared with approximately $13.1 million at December 31, 1998. Backlog consists of product orders for which a customer purchase order has been received and is scheduled for shipment within 12 months. Since orders may be rescheduled or canceled, backlog does not necessarily reflect future sales levels. SEASONALITY The Company expects the second and third quarters to be positively impacted, and the first and fourth quarters to be negatively impacted, by the operating results of the Aftermarket Heating and Cooling Systems segment, which typically experiences higher sales during the summer months as the demand for replacement radiators and air conditioning parts and supplies tend to increase and lower sales during the winter months. Historically, the OEM Heat Transfer Systems and Specialty Metal Fabrication segments have experienced a slight decrease in revenues and operating income during the third and fourth quarters compared with the first and second quarters, as third quarter results are affected by scheduled plant shut-downs for vacations and model year changeovers, while fourth quarter results are affected by scheduled plant shut-downs for the holiday season. GDI's seasonal impact became more pronounced on TransPro as a whole since 1998 with the end of the far less seasonal Crew Cab and DRW program in December 1997. The Company will continue to seek opportunities to mitigate the seasonality factor through its other segment operations. RESEARCH AND DEVELOPMENT Research and development expenses were approximately $0.2 million for each of the years ended December 31, 1999, 1998 and 1997. EMPLOYEES At December 31, 1999, the Company had approximately 2,562 employees. Of these employees, approximately 1,160 were covered by collective bargaining agreements. The Company's collective bargaining agreements are independently negotiated at each manufacturing facility and expire on a staggered basis. Locals affiliated with the International Union of Electronic, Electrical, Technical, Salaried and Machine Workers (AFL-CIO) and the United Paperworkers International Union represent approximately 26% each, of the Company's unionized employees. In addition, a local Mexican labor union represents approximately 44% of the Company's unionized employees. The Company has successfully re-negotiated three collective bargaining agreements over the last several years and feels labor relations are good, although there can be no assurance that the Company will not experience work stoppages in the future. 11 12 ITEM 2. PROPERTIES The Company maintains its corporate headquarters in New Haven, Connecticut and conducts its operations through 16 principal manufacturing and assembly facilities. The Company believes its property and equipment are in good condition and suitable for its needs. The Company estimates that its plants operate at between 40% and 95% of capacity on a six-day basis. The Company has sufficient capacity to increase production with respect to its replacement radiator and original equipment product lines, its air conditioning replacement parts business, and its vehicle conversion and fabricated metal products operations. The Company's principal manufacturing and assembly facilities are as follows:
APPROXIMATE OWNED/ LOCATION SQUARE FOOTAGE LEASED PRODUCT LINE - ------------------------------------ -------------- --------- ----------------------------------------------- New Haven, Connecticut 158,800 Owned(1) Corporate headquarters, GDI headquarters, tubes for original equipment radiators. Jackson, Mississippi 135,885 Owned Original equipment radiators. Wooster, Ohio 216,000 Owned (1) Fabricated metal products, vehicle conversion. Lorain, Ohio 79,846 Owned Vehicle conversion. Thomaston, Georgia 30,000 Owned Fabricated metal products. Baltimore, Maryland 10,000 Leased Vehicle conversion. Bridgeton (St. Louis), Missouri 16,900 Leased Vehicle conversion. Plano, Texas 71,500 Leased Fabricated metal products. Dallas, Texas 50,050 Leased Replacement radiators (radiator cores). Nuevo Laredo, Mexico 109,055 Leased Replacement radiators (radiator cores). Maquoketa, Iowa 38,000 Leased Parts and tooling for replacement radiators. Los Angeles, California 32,900 Leased Air conditioning condensers. Mississauga, Ontario Canada 14,616 Leased Vehicle conversion. Arlington, Texas 82,350 Leased Air conditioning parts & supplies. Arlington, Texas 18,000 Leased Air conditioning compressor re-manufacturing. Warren, Michigan 21,500 Leased Vehicle conversion.
- ------------------------- (1) Subject to IRB financing arrangements. In its Aftermarket Heating and Cooling Systems segment, the Company maintains a nationwide network of manufacturing and distribution facilities which enables the Company to provide its customers, generally, with same day delivery service. In addition to the three manufacturing facilities for replacement radiators described above, the Company also operates 12 fully equipped, regional manufacturing facilities. These 12 facilities are all leased, average approximately 11,000 square feet in size and are strategically located to generally provide same-day service to virtually the entire United States. The Company also has 47 local branch offices and 18 independent agencies and one distribution center in Memphis, Tennessee that comprise its nationwide local distribution network. All of the Company's local branch distribution facilities are leased and are approximately 6,000 square feet in size. 12 13 ENVIRONMENTAL MATTERS As is the case with manufacturers of similar products, the Company uses certain hazardous substances in its operations, including certain solvents, lubricants, acids, paints and lead, and is subject to a variety of environmental laws and regulations governing discharges to air and water, the handling, storage and disposal of hazardous or solid waste materials and the remediation of contamination associated with releases of hazardous substances. These laws include the Resource Conservation and Recovery Act (as amended), the Clean Air Act (as amended), the Clean Water Act of 1990 (as amended) and the Comprehensive Environmental Response, Compensation and Liability Act (as amended). The Company believes that, as a general matter, its policies, practices and procedures are properly designed to reasonably prevent risk of environmental damage and financial liability to the Company. During 1998, the Company was fined approximately $0.1 million in connection with certain pre-treatment water containment violations at its Jackson, Mississippi facility. The issues were satisfactorily resolved. The Company believes it is reasonably possible that environmental related liabilities might exist with respect to an industrial site formerly occupied by the Company. Based upon environmental site assessments, the Company believes that the cost of any potential remediation for which the Company may ultimately be responsible will not have a material adverse effect on the consolidated financial position, results of operation or liquidity of the Company. The Company has an environmental policy that confirms its commitment to compliance with existing environmental regulations and planning to reduce the level of pollutants in the manufacturing process. The Company currently does not anticipate any material adverse effect on its consolidated results of operations, financial condition or competitive position as a result of compliance with federal, state, local or foreign environmental laws or regulations. However, risk of environmental liability and charges associated with maintaining compliance with environmental laws is inherent in the nature of the Company's business and there is no assurance that material environmental liabilities and compliance charges will not arise. The Company has assumed all environmental liabilities, if any, associated with the former Allen Automotive and Truck Products Business and GDI. ITEM 3. LEGAL PROCEEDINGS Various legal actions are pending against or involve the Company with respect to such matters as product liability, casualty and employment-related claims. In the opinion of management, after review and consultation with counsel, the aggregate liability, if any, that ultimately may be incurred in excess of amounts already provided should not have a material adverse effect on the consolidated financial position, results of operations, or liquidity of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of the year ended December 31, 1999. EXECUTIVE OFFICERS OF THE REGISTRANT*
SERVED AS OFFICER POSITION OR OFFICE WITH THE COMPANY & BUSINESS NAME AGE SINCE EXPERIENCE DURING PAST FIVE (5) YEAR PERIOD ---- --- ----- ------------------------------------------- Henry P. McHale 61 July 1995 President, Chief Executive Officer and Director, since 1995; President and Chief Executive Officer of GDI, 1992 through 1995. Prior thereto, various executive positions with Ladish Corporation and Rockwell Automotive. Jeffrey L. Jackson 52 August 1995 Vice President Human Resources, since 1995; Vice President of Human Resources of GDI, 1992 through 1995. Prior thereto, Managing Director of Resources of IMCOR since 1990. Timothy E. Coyne 45 October 1996 Vice President Finance, Treasurer, Secretary, Chief Financial Officer since 1998 and Corporate Controller, since 1996; Vice President of Finance and Administration and Treasurer of Keene Corporation 1990 through 1996. Michael T. Hooper 54 February 1998 President of The Crown Divisions since 1996; Senior Vice President of Findlex Corporation from 1993-1996; prior thereto various executive positions with Rockwell International and CMW, Inc. John F. Della Ventura 51 February 1998 President of G&O, since 1998; Group Controller-Engine Systems of Echlin, Inc. (which was acquired by Dana Corporation) 1990 through 1998. Prior thereto Vice President Finance, G&O Manufacturing.
* All officers are elected by the Board of Directors. 13 14 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock is traded on the New York Stock Exchange. The number of stockholders of record of the Company's Common Stock as of the close of business on March 1, 2000, was 1,207. Information regarding market prices and dividends declared for the Company's Common Stock is shown below for 1999 and 1998. Market prices are closing prices quoted on the New York Stock Exchange, the principal exchange market for the Company's Common Stock. The Company currently expects that comparable dividends will continue to be paid in the future, although there can be no assurance of this.
YEAR ENDED DECEMBER 31, 1999 ---------------------------------------------------- 1ST QTR 2ND QTR 3RD QTR 4TH QTR ------- ------- ------- ------- Market price of common stock ---High $ 6-1/4 $ 6-3/8 $ 7-15/16 $ 6-7/8 ---Low 4-5/16 4-3/8 4-15/16 5 Dividends per share $ .05 $ .05 $ .05 $ .05
YEAR ENDED DECEMBER 31, 1998 -------------------------------------------------------- 1ST QTR 2ND QTR 3RD QTR 4TH QTR ------- ------- ------- ------- Market price of common stock ---High $ 8-15/16 $ 8-3/4 $ 7-7/16 $ 6-1/4 ---Low 7 7-7/16 5-5/16 4-3/8 Dividends per share $ .05 $ .05 $ .05 $ .05
ITEM 6. SELECTED FINANCIAL DATA The information required by this Item is incorporated herein by reference to "Financial Highlights" contained in the Registrant's 1999 Annual Report to Stockholders, portions of which are filed as Exhibit 13 to this Report. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required by this Item is incorporated herein by reference to "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in the Registrant's 1999 Annual Report to Stockholders, portions of which are filed as Exhibit 13 to this Report. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company has certain exposures to market risk related to changes in interest rates, foreign currency exchange rates and commodities. The Company's interest rate risk is most sensitive to changes in the U.S. interest rates. The Company has an outstanding revolving credit agreement, under which approximately $49.7 million was outstanding at December 31, 1999. The revolving credit agreement bears interest at variable rates based on current indices. The weighted average interest rate on this agreement during 1999 was 6.55%. Interest on the revolving credit agreement is based on, at the Company's option, changes in either the Eurodollar loan rate or the Federal Funds effective rate, plus an applicable margin based on certain Company ratios. The Company also has Industrial Revenue Bonds ("IRB's"), which 14 15 aggregated $13.0 million at December 31, 1999, and mature in 2010 and 2013. The IRB's had a weighted average interest rate of 3.58% during 1999. Interest on the IRB's is based on the short-term tax exempt bonds index. The Company has sales and manufacturing facilities in Mexico and Canada. As a result, changes in the foreign currency exchange rates and changes in the economic conditions in these foreign markets could affect financial results. The Company has accounted for transactions associated with these foreign operations in accordance with the guidance established under Financial Accounting Standards No. 52, "Foreign Currency Translation." Generally, assets and liabilities are translated into U.S. dollars at the current rate of exchange, while revenues and expenses are translated at the average rate for the year. Property, plant and equipment and its associated depreciation and stockholders' equity are translated at the historical rate. Operating income or loss for the Mexico operation is included in the periodic results of operations of the Company. The foreign currency exchange amounts associated with Canada are included in other comprehensive income through the statement of changes in stockholders' equity. The Company believes it has mitigated the risk associated with its foreign operations through its management of inventory and other significant operating assets. Certain risks may arise in the various commodity markets in which the Company participates. Commodity prices in the copper, brass and steel markets may be subject to changes based on availability. The Company conducts its purchasing of such commodities generally through three to six month purchase order commitments. See "Raw Materials and Suppliers" in Part I of this Report for additional information on commodity pricing. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this Item is incorporated herein by reference to the Consolidated Statements of Income, Consolidated Statements of Comprehensive Income, Consolidated Balance Sheets, Consolidated Statements of Cash Flows and Consolidated Statements of Changes in Stockholders' Equity, the Notes to Consolidated Financial Statements and the "Report of Independent Accountants" contained in the Registrant's 1999 Annual Report to Stockholders, portions of which are filed as Exhibit 13 to this Report. 15 16 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There have been no disagreements between Registrant and its independent accountants on accounting and financial disclosure during the year ended December 31, 1999. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Portions of the information required by this item are included in Part I hereof, on page 13 of this Report. Other information required by this item is contained in the Company's 2000 Proxy Statement under the heading, "Proposal No. 1 - Election of Directors" and is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information contained in the Company's 2000 Proxy Statement under the heading "EXECUTIVE COMPENSATION" is incorporated herein by reference. 16 17 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information contained in the Company's 2000 Proxy Statement under the headings "STOCK OWNERSHIP-Principal Stockholders and Directors and Officers" is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information contained in the Company's 2000 Proxy Statement, under the heading "CERTAIN TRANSACTIONS" is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)(1)Financial Statements of the Registrant The Consolidated Financial Statements of the Registrant listed below, together with the Report of Independent Accountants, dated February 14, 2000, are incorporated herein by reference to the Registrant's 1999 Annual Report to Stockholders, portions of which are filed as Exhibit 13 to this Report. Consolidated Statements of Income for the Years Ended December 31, 1999, 1998 and 1997 Consolidated Statements of Comprehensive Income for the Years Ended December 31, 1999, 1998 and 1997 Consolidated Balance Sheets at December 31, 1999 and 1998 Consolidated Statements of Cash Flows for the Years Ended December 31, 1999, 1998 and 1997 Consolidated Statements of Changes in Stockholders' Equity for the Years Ended December 31, 1999, 1998 and 1997 Notes to Consolidated Financial Statements Report of Independent Accountants (a)(2)Financial Statement Schedules The following additional information should be read in conjunction with the Consolidated Financial Statements of the Registrant included in Item 8 of this Report: Schedule II - Valuation and Qualifying Accounts, on page 23 of this Report Schedules other than the schedule listed above are omitted because they are not applicable, or because the information is furnished elsewhere in the Consolidated Financial Statements or the Notes thereto. (a)(3) Exhibits The information required by this Item relating to Exhibits to this Report is included in the Exhibit Index in (c) below. 17 18 (b) Reports on Form 8-K On October 22, 1999, the Company filed a Current Report on Form 8-K announcing its intention to evaluate strategic alternatives for its OEM Heat Transfer Systems and Specialty Metal Fabrication segments. (c) Exhibits -The following exhibits are filed as part of this report: 2.1 Agreement, dated June 15, 1995, between Allen Heat Transfer Products, Inc., AHTP II, Inc., GO/DAN Industries and Handy & Harman Radiator Corporation. (1) 3.1 (i) Restated Certificate of Incorporation of TransPro, Inc. (3) 3.1 (ii) By-laws of TransPro, Inc. (1) 4.1 Form of Rights Agreement between the Company and the First National Bank of Boston, as Rights Agent (including form of Certificate of Designations of Series A Junior Participating Preferred Stock and form of Rights Certificate). (1) 4.2 Form of Revolving Credit Agreement between the Company and Certain lending Institutions or Banks, BankBoston, N.A., as Agent. (1) The Company is a party to certain other long-term debt agreements each of which does not exceed 10 percent of the total assets of the Company and its subsidiaries on a consolidated basis. The Company agrees to file such agreements upon request from the Securities and Exchange Commission. 4.3 First Amendment to Revolving Credit Agreement between the Company and Certain lending Institutions or Banks, BankBoston N.A. as Agent. (4) 4.4 Waiver and Second Amendment to Revolving Credit Agreement between the Company and Certain lending Institutions or Banks, BankBoston, N.A., as Agent. (4) 4.5 Third Amendment to Revolving Credit Agreement between the Company and Certain lending Institutions or Banks, BankBoston N.A. as Agent, filed herewith. 10.1 TransPro, Inc. 1995 Stock Plan. (1) 10.2 Form of Stock Option Agreement under the 1995 Stock Option Plan (1) 10.3 Form of TransPro, Inc. 1995 Non-employee Directors Stock Option Plan. (1) 10.4 Form of Stock Option Agreement under the 1995 Non-employee Directors Stock Option Plan. (1) 10.5 Form of Contribution Agreement between Allen and the Company. (1) 10.6 Form of Instrument of Assumption of the Company. (1) 10.7 Form of Indemnification Agreement. (1)
18 19 10.8 Form of Employment Agreement between the Company and Henry P. McHale. (1) 10.9 Amendment No. 1 to Employment Agreement between the Company and Henry P. McHale. (1) 10.10 Form of Employment Agreement between the Company and John C. Martin, III. (1) 10.11 Form of Key Employee Severance Policy. (1) 10.12 Letter Agreement, dated December 15, 1992 between Jeffrey J. Jackson and GO/DAN Industries. (1) 10.13 Letter Agreement dated September 24, 1996 between Timothy E. Coyne and TransPro, Inc. (2) 10.14 Settlement and Release Agreement dated February 3, 1999 between the Company and John C. Martin, III, filed herewith. 13 Portions of the 1999 Annual Report to Stockholders incorporated by reference herein. 21.1 Subsidiaries of the Company, filed herewith. 22 Report of Independent Accountants on Financial Statement Schedule, filed herewith. 23 Consent of PricewaterhouseCoopers LLP, filed herewith. 24 Powers of Attorney (included on signature page), filed herewith. 27 (i-viii) Financial Data Schedule, filed herewith.
---------------------- (1) Incorporated by reference to the Company's Registration Statement on Form S-1 (File No. 33-96770). (2) Incorporated by reference to the Company's 1996 Form 10-K (File No. 1-13894). (3) Incorporated by reference to the Company's Form 10-Q for the quarter ended September 30, 1998(File No. 1-13894). (4) Incorporated by reference to the Company's Form 10-Q/A for the quarter ended March 31, 1999(File No. 1-13894). 19 20 SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. TransPro, Inc. By /s/ HENRY P. MCHALE ---------------------------------------------- Henry P. McHale President, Chief Executive Officer and Director Date: March 15, 2000 POWER OF ATTORNEY Each of the undersigned hereby appoints Barry R. Banducci and Henry P. McHale, and each of them severally, his or her true and lawful attorneys to execute on behalf of the undersigned any and all amendments to this annual report on Form 10-K and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission. Each such attorney will have the power to act hereunder with or without the others. Each of the undersigned hereby ratifies and confirms all such attorneys, or any of them may lawfully do or cause to be done by virtue thereof. --------------------------- Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. /s/ HENRY P. MCHALE March 15, 2000 - ------------------------------------ Henry P. McHale, President, Chief Executive Officer and Director /s/ WILLIAM J. ABRAHAM, JR. March 15, 2000 - ------------------------------------ William J. Abraham, Jr., Director /s/ BARRY R. BANDUCCI March 15, 2000 - ------------------------------------ Barry R. Banducci, Director /s/ PHILIP WM. COLBURN March 15, 2000 - ------------------------------------ Philip Wm. Colburn, Director /s/ PAUL R. LEDERER March 15, 2000 - ------------------------------------ Paul R. Lederer, Director /s/ SHARON M. OSTER March 15, 2000 - ------------------------------------ Sharon M. Oster, Director /s/ F. ALAN SMITH March 15, 2000 - ------------------------------------ F. Alan Smith, Director /s/ TIMOTHY E. COYNE March 15, 2000 - ------------------------------------ Timothy E. Coyne Vice President Finance, Treasurer, Secretary, Corporate Controller and Chief Financial Officer
20 21 SCHEDULE II TRANSPRO, INC. VALUATION AND QUALIFYING ACCOUNTS
PERIOD BALANCE AT CHARGED TO CHARGED TO DEDUCTIONS BALANCE AT BEGINNING OF COSTS AND OTHER END OF (DOLLARS IN THOUSANDS) PERIOD EXPENSES ACCOUNTS (1) PERIOD Year Ended December 31, 1999 Allowance for doubtful accounts $ 2,390 $ 268 $ (238) $ (292) $ 2,128 Allowance for obsolete inventory 5,605 875 (232) (1,525) 4,723 Allowance for tax loss valuation - - 189 - 189 Year Ended December 31, 1998 Allowance for doubtful accounts 3,441 1,394 250 (2,695) 2,390 Allowance for obsolete inventory 5,003 1,629 800 (1,827) 5,605 Year Ended December 31, 1997 Allowance for doubtful accounts 3,378 1,790 - (1,727) 3,441 Allowance for obsolete inventory 4,942 1,299 - (1,238) 5,003
(1) Amounts adjusted in doubtful accounts and inventory were related to acquisition reserves and charged to goodwill. Amounts for tax valuation allowance were charged to deferred taxes. 22 EX-4.5 2 EX-4.5 1 Exhibit 4.5 THIRD AMENDMENT TO REVOLVING CREDIT AGREEMENT This Third Amendment to Revolving Credit Agreement, dated as of December 29, 1999 (the "Amendment"), by and between (a) TRANSPRO, INC., a Delaware corporation (the "Parent"), ALLEN HEAT TRANSFER PRODUCTS, INC., a Delaware corporation ("AHTP"), AHTP II, INC., a Delaware corporation ("AHTP II"), EVAP, INC. (f/k/a EI Acquisition Corp.), a Texas corporation ("EVAP" and collectively with Parent, AHTP and AHTP II, the "Original Borrowers"), GO/DAN INDUSTRIES, INC., a Delaware corporation ("GDI") and A/C PLUS, INC., a Texas corporation ("AC" and collectively with GDI and the Original Borrowers, the "Borrowers"), (b) BANKBOSTON, N.A., a national banking association and the other lending institutions listed on Schedule 1 of the Credit Agreement (collectively, the "Banks") and (c) BANKBOSTON, N.A., as agent (the "Agent") for the Banks, amending certain provisions of the Revolving Credit Agreement dated as of July 30, 1998 (as amended and in effect from time to time, the "Credit Agreement"), by and between the Original Borrowers, the Agent and the Banks. Capitalized terms used herein and which are not otherwise defined shall have the respective meanings ascribed thereto in the Credit Agreement. WHEREAS, the Borrowers have requested that the Banks agree to amend the terms of the Loan Documents in several respects as hereinafter more fully set forth; and WHEREAS, the Banks are willing to amend the terms of the Loan Documents in such respects, upon the terms and subject to the conditions contained herein; NOW, THEREFORE, in consideration of the mutual agreements contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: Section 1. AMENDMENT TO SECTION 1.1 OF THE CREDIT AGREEMENT. Section 1.1 of the Credit Agreement is hereby amended as follows: (a) The definition of "Borrowing Base" set forth in Section 1.1 of the Credit Agreement is hereby amended by (i) substituting the percentage "85%" for the percentage "80%" contained in clause (a) therein, and (ii) substituting the percentage "75%" for the percentage "80% contained in clause (c) therein. (b) The definition of "Eligible Accounts Receivable" set forth in Section 1.1 of the Credit Agreement is hereby amended by adding the following to the end thereof: "; and (x) that are not due from any single account debtor if more than thirty percent (30%) of the aggregate amount of all Accounts Receivable 2 owing from such account debtor would otherwise not be Eligible Accounts Receivable." Section 2. AMENDMENT TO SECTION 2.3.2(a) OF THE CREDIT AGREEMENT. Section 2.3.2(a) of the Credit Agreement is hereby amended and restated in its entirety to read as follows: (a) Unless terminated earlier pursuant to the provisions of this Section 2.3, on each of the dates set forth in the table below (each such date being referred to as a "Reduction Date"), the Total Commitment shall be automatically reduced (or in the case of January 21, 2000, increased) to the amount set forth opposite such date in the column headed "Commitment Amount" set forth below, as such Commitment Amount may be adjusted and in effect from time to time pursuant to this Section 2.3 whereupon the Commitments of the Banks shall be reduced (or increased) pro rata in accordance with their respective Commitment Percentages:
REDUCTION DATE COMMITMENT AMOUNT -------------- ----------------- January 21, 2000 $75,000,000 November 30, 2000 $70,000,000 December 31, 2000 $65,000,000 March 31, 2001 $63,500,000 June 30, 2001 $62,000,000 September 30, 2001 $60,500,000 December 31, 2001 $59,000,000 March 31, 2002 $57,500,000 June 30, 2002 $56,000,000 September 30, 2002 $54,500,000 December 31, 2002 $53,000,000 March 31, 2003 $51,500,000 June 30, 2003 $50,000,000
On each Reduction Date there shall become absolutely and unconditionally due and payable, and the Borrowers hereby absolutely and unconditionally, jointly and severally, promise to pay to the Agent for the account of the Banks, the amount by which the sum of the aggregate principal amount of all Loans outstanding plus the Maximum Drawing Amount of all Letters of Credit and all Unpaid Reimbursement Obligations exceeds the Total Commitment after giving effect to the reduction of the Total Commitment as set forth herein. No reduction of the Total Commitment may be reinstated. 3 Section 3. AMENDMENT TO SECTION 10.1 OF THE CREDIT AGREEMENT. The table in Section 10.1 of the Credit Agreement is hereby amended and restated in its entirety as set forth below:
PERIOD RATIO ------ ----- April 1, 1999 - March 31, 2000 3.50:1.00 April 1, 2000 - June 30, 2000 3.25:1.00 July 1, 2000 - March 31, 2001 3.00:1.00 April 1, 2001 and thereafter 2.75:1.00
Section 4. ADDITION TO SECTION 10 OF THE CREDIT AGREEMENT. The following new Section 10.6 is hereby added to the Credit Agreement: "10.6 Minimum Availability. The Borrowers will not at any time prior to January 1, 2001 permit the sum of the outstanding amount of the Loans plus the Maximum Drawing Amount and all Unpaid Reimbursement Obligations to exceed the Borrowing Base minus $5,000,000." Section 5. CONDITIONS TO EFFECTIVENESS. This Amendment shall not become effective until the Agent receives the following: (a) a counterpart of this Amendment signed by each of the Borrowers, the Agent and each of the Banks; (b) an amendment fee of $112,500 paid by the Borrowers for the pro rata account of each Bank based on such Bank's Commitment Percentage; (c) an opinion of counsel to the Borrowers, in form and substance satisfactory to the Agent; and (d) such other documents, instruments, certificates or agreements as the Agent may reasonably require. Section 6. REPRESENTATIONS AND WARRANTIES. The Borrowers represent and warrant that the representations and warranties of the Borrowers contained in the Credit agreement and the other Loan Documents were true and correct when made and continue to be true and correct on and as of the date hereof as if made on the date hereof except to the extent of changes resulting from transactions contemplated or permitted by the Credit Agreement or the other Loan Documents and to the extent that such representations and warranties related expressly to an earlier date and that no Default or Event of Default has occurred and is continuing. Section 7. RATIFICATION, ETC. Except as expressly amended hereby, the Credit Agreement and all documents, instruments and agreements related thereto, including, but not limited to, the Security Documents, are hereby ratified and confirmed in all respects and shall continue in full force and effect. The Credit Agreement and this Amendment shall be read and construed as a 4 single agreement. All references in the Credit Agreement or any related agreement or instrument to the Credit Agreement shall hereafter refer to the Credit Agreement as amended hereby. Section 8. COUNTERPARTS. This Amendment may be executed in one or more counterparts, each of which shall be deemed an original but which together shall constitute one and the same instrument. Section 9. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS (WITHOUT REFERENCE TO CONFLICT OF LAWS). [THE REMAINDER OF THIS PAGE HAS BEEN LEFT INTENTIONALLY BLANK] 5 IN WITNESS WHEREOF, the parties hereto have executed this Amendment as a document under seal as of the date first above written. TRANSPRO, INC. By: /s/ TIMOTHY E. COYNE ----------------------------------- Name: Timothy E. Coyne Title: V.P. ALLEN HEAT TRANSFER PRODUCTS, INC. By: /s/ TIMOTHY E. COYNE ----------------------------------- Name: Timothy E. Coyne Title: V.P. AHTP II, INC. By: /s/ TIMOTHY E. COYNE ----------------------------------- Name: Timothy E. Coyne Title: V.P. EVAP, INC. (f/k/a EI Acquisition Corp. By: /s/ TIMOTHY E. COYNE ----------------------------------- Name: Timothy E. Coyne Title: V.P. GO/DAN INDUSTRIES, INC. By: /s/ TIMOTHY E. COYNE ----------------------------------- Name: Timothy E. Coyne Title: V.P. A/C PLUS, INC. By: /s/ TIMOTHY E. COYNE ----------------------------------- Name: Timothy E. Coyne Title: V.P. 6 BANKBOSTON, NA., individually and as Agent By: /s/ RICHARD D. BRIGGS, JR. ----------------------------------- Name: Richard D. Briggs, Jr. Title: Director PEOPLE'S BANK By: /s/ KEVIN. R. CALLAHAN ----------------------------------- Name: Kevin R. Callahan Title: Vice President THE BANK OF NEW YORK By: /s/ GERALDINE TURKINGTON ----------------------------------- Name: Geraldine Turkington Title: Vice President HARRIS TRUST AND SAVINGS BANK By: /s/ JEFFREY C. NICHOLSON ----------------------------------- Name: Jeffrey C. Nicholson Title: Managing Director BANK ONE, NA (Main Office Chicago) By: /s/ STEPHEN E. MCDONALD ----------------------------------- Name: Stephen. E. McDonald Title: Senior Vice President EX-13 3 EX-13 1 EXHIBIT 13 FINANCIAL HIGHLIGHTS (Amounts in thousands, except per share amounts, current ratio and employee data)
1999 1998 1997 1996 1995 -------- -------- -------- -------- -------- OPERATING RESULTS Sales $261,577 $240,065 $288,866 $264,095 $151,660 Gross margin 64,198 54,518 66,684 61,827 31,174 Plant and business consolidation and closure costs 325 -- 3,958 4,389 -- Income from operations 11,364 6,231 16,448 17,006 13,907 Income from joint venture -- -- -- -- 2,495 Net income 6,816 1,647 7,875 8,420 9,074 Basic earnings per common share* $ 1.03 $ .25 $ 1.20 $ 1.28 $ 1.39 Diluted earnings per common share* $ .96 $ .24 $ 1.20 $ 1.28 $ 1.39 Cash dividends per common share $ .20 $ .20 $ .20 $ .20 $ .05 FINANCIAL CONDITION Current ratio 3.24 3.34 2.65 2.46 2.27 Working capital $ 93,574 $ 70,176 $ 63,465 $ 56,161 $ 53,255 Capital expenditures 8,200 8,582 7,214 5,565 4,066 Depreciation and amortization expense 7,541 6,782 8,193 7,020 3,701 Net property, plant and equipment 40,627 39,487 36,752 37,939 36,951 Total assets 185,895 148,527 144,540 140,266 139,718 Debt 61,928 42,197 37,838 38,917 40,846 Total equity 74,471 67,867 65,015 58,696 51,103 Number of employees 2,562 2,367 2,322 2,139 2,001
* The basic and diluted earnings per common share for 1995 is for comparative purposes only, as common shares were not issued until October 1995, and assumes average common shares outstanding of 6,621,000. On September 29, 1995, TransPro, Inc. ("TransPro" or the "Company") completed a series of transactions pursuant to which the Company's sole stockholder, Allen Telecom Inc. ("Allen"), contributed (the "Contribution") to the Company substantially all of the assets and liabilities of Allen's original equipment radiator and fabricated metal products business (the "Automotive and Truck Products Business"), as well as Allen's 50% ownership interest in GO/DAN Industries ("GDI"), a 50/50 joint venture partnership between affiliates of Allen and Handy & Harman, that produces replacement radiators and other heat transfer products for the automotive and truck aftermarkets. Immediately thereafter, Allen caused GDI to redeem the outstanding ownership interest in GDI not already owned by Allen (the "GDI Redemption"), thereby making GDI an indirect wholly owned partnership of the Company. Effective April 1, 1999, GDI changed its organizational structure from a partnership to a corporation. In addition, Allen effected the distribution (the "Distribution") of 100% of the outstanding shares of the Company's common stock to the holders of record of Allen's common stock as of the close of business on September 29, 1995 (the "Record Date"). The Distribution was made on the basis of one share of the Company's common stock for every four shares of Allen's common stock outstanding on the Record Date, which resulted in the distribution of an aggregate of 6,621,349 shares of TransPro common stock. As a result of the Contribution, the Distribution, and the GDI Redemption, TransPro owns the Automotive and Truck Products Business and 100% of GDI, and is an independent publicly-traded company. 1 2 The above table sets forth certain selected historical (1995) financial data for the Crown and G&O divisions of the Company (formerly the Automotive and Truck Products Business). Prior to October 1, 1995, the date on which the financial results of GDI were reported on a fully consolidated basis, TransPro's 50% ownership in GDI was reported under the equity method of accounting. Therefore the 1995 sales, gross margin and income from operations amounts in the table above include only three months of GDI activity. The number of employees for 1995 includes GDI employees. 2 3 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS TransPro, Inc. is a manufacturer and supplier of heat transfer components and systems, replacement automotive air conditioning parts and specialty fabricated metal products for a variety of Aftermarket and OEM automotive, truck and industrial equipment applications, and performs vehicle conversions. The Company operates in three business segments: Aftermarket Heating and Cooling Systems, OEM Heat Transfer Systems and Specialty Metal Fabrication. In October 1999, the Company announced its intentions to focus on its Aftermarket Heating and Cooling Systems segment and explore strategic alternatives for its Specialty Metal Fabrication and OEM Heat Transfer Systems Segments. YEAR ENDED DECEMBER 31, 1999 VERSUS YEAR ENDED DECEMBER 31, 1998 Net sales in 1999 increased 9.0% to $261.6 million compared with $240.1 million in 1998. Sales in the Aftermarket Heating and Cooling Systems business increased $9.9 million, or 6.3%, compared with 1998, reflecting the sales of air conditioning parts at Evap and A/C Plus and volume increases in complete radiators, partially offset by lower radiator core and condenser sales. Sales in the Specialty Metal Fabrication business increased $11.5 million, or 26.0%, compared with 1998, primarily due to increased sales in both specialty fabricated enclosures to telecommunications customers and vehicle conversions. Sales in the OEM Heat Transfer Systems business were essentially flat. Consolidated gross margin percentages improved to 24.5% in 1999 from 22.7% in 1998. Gross margin improved 17.8% to $64.2 million in 1999 from $54.5 million in 1998, reflecting the contribution of higher margin air conditioning parts sales at Evap and A/C Plus, coupled with lower material costs, a higher proportion of complete radiator sales, and manufacturing efficiencies in the Aftermarket Heating and Cooling Systems business. Gross margin improved in the Specialty Metal Fabrication business due to higher production levels and improved manufacturing efficiencies in specialty fabricated enclosures, partially offset by lower production volume in the Canadian vehicle conversion operations. Actions the Company has taken to improve operational efficiencies and reduce costs in the OEM Heat Transfer Systems business generated positive gross margins for the year ended December 31, 1999, compared with negative margins in the prior year. Selling, general and administrative ("SG&A") expenses in 1999 increased $4.2 million, or 8.7%, over 1998, but were flat as a percent of sales at 20.1%. Aftermarket Heating and Cooling Systems SG&A expenses increased due to the full year inclusion of Evap and A/C Plus. Specialty Metal Fabrication SG&A expenses increased, reflecting a full complement of expenses at the Plano, Texas facility in 1999, and, in 1998 a $1.1 million reduction in certain freight accruals no longer required at the vehicle conversion operation and a one-time dividend from the Ohio State Workers Compensation fund of $0.6 million, offset by the settlement of an employment related lawsuit of $0.6 million. OEM Heat Transfer Systems SG&A expenses in 1999 included approximately $0.3 million related to the settlement of an employment-related lawsuit. Corporate expenses during 1999 decreased $1.1 million reflecting a reduction of $0.7 million in personnel related costs and the inclusion in 1998 of a one-time reserve of $0.5 million against the doubtful collection of a note receivable. The Company recorded $0.3 million in plant and business consolidation and closure costs in 1999 associated with the closing of the Company's Philadelphia, Pennsylvania and Atlanta, Georgia replacement automotive condenser manufacturing plants. Net interest expense increased to $4.4 million in 1999 from $3.3 million in 1998 due to higher debt levels associated with the acquisition of Evap and A/C Plus, coupled with higher working capital levels in the Aftermarket Heating and Cooling Systems business to support our new product introductions and anticipated sales increases in the air conditioning parts and Specialty Metal Fabrication businesses. 3 4 During the year ended December 31, 1999, the Company recognized a non-recurring; non-cash deferred tax benefit of $2.9 million related to the change in the organizational structure of its GO/DAN Industries operation from a partnership to a corporation. Excluding the impact of the non-recurring, non-cash deferred tax benefit, the Company's effective tax rate was 42.8% for the year ended December 31, 1999 and is comprised of the U.S. Federal income tax rate, plus the estimated aggregate effective rate for foreign, state and local income taxes. The effective tax rate declined from 43.3% for the year ended December 31, 1998, reflecting a decrease in non-deductible expenses for tax purposes in 1999 and a valuation allowance for the net realizable amount of available tax benefit associated with a net operating loss carry-forward for the Company's Canadian vehicle conversion operation. Net income was $6.8 million, or $1.03 per basic common share and $0.96 per diluted common share in 1999 compared with $1.6 million, or $0.25 per basic common share and $0.24 per diluted common share in 1998. Before the net impact of plant and business consolidation and closure costs, legal settlement costs and the deferred tax benefit, net earnings were $4.3 million, or $0.65 per basic common share and $0.61 per diluted common share in 1999. Before the net impact of legal settlement costs, the workers' compensation dividend and the note receivable reserve, earnings were $1.9 million, or $0.29 per basic common share and $0.28 per diluted common share in 1998. YEAR ENDED DECEMBER 31, 1998 VERSUS YEAR ENDED DECEMBER 31, 1997. Net sales for 1998 declined 17% to $240.1 million compared with $288.9 million for 1997. This decline reflects the completion in the fourth quarter of 1997 of the Ford Crew Cab and DRW program and the Ford order to convert vehicles for the U.S. Postal Service (the "Ford Orders"). Excluding the Ford Orders from the 1997 results, sales increased by $28.3 million or 13% in 1998. Aftermarket Heating and Cooling Systems sales increased $13.1 million or 9% over 1997 due to unit volume gains in the radiator, heater and condenser product lines as well as air conditioning parts sales related to the August 1998 acquisition of Evap, an aftermarket air conditioning parts supplier. Excluding the Ford Orders, sales in the Specialty Metal Fabrication business increased $14.8 million or 50% over 1997 levels, substantially offsetting the loss of revenue from the Ford order to convert vehicles for the U.S. Postal Service and reflecting the full year effect of the December 1997 acquisition of Vehicle Management Systems, Inc. ("VMS"), a Canadian vehicle converter. OEM Heat Transfer Systems sales increased 1% over 1997. Gross margins of 22.7% in 1998 were lower than the 23.1% achieved in the prior year, reflecting the completion of the Ford Orders. Aftermarket Heating and Cooling Systems margins increased due to cost savings achieved by the move of heater manufacturing to Mexico during 1997, efficiencies resulting from increased volume and lower copper costs, offset by a higher proportion of sales to lower margin customers. Excluding the Ford Orders, margins in the Specialty Metal Fabrication business have increased during the year due to higher vehicle conversion revenues and improved manufacturing efficiencies. These achievements have substantially offset the negative margin impact of the completion of the Ford U.S. Postal Service program in December 1997. Although gross margins for the OEM Heat Transfer Systems business remained negative during 1998, there have been substantial improvements compared with 1997. In 1998, SG&A expenses increased 4% to $48.3 million from $46.3 million in 1997. SG&A expenses in the Aftermarket Heating and Cooling Systems business increased by $1.8 million due to higher costs associated with increased volume, and the acquisition of Evap, which added approximately $1.1 million of incremental SG&A expense, partially offset by a reduction in bad debt expense of $0.8 million related to the 1997 bankruptcy filing of a large customer and cost savings related to the consolidation of distribution centers during 1998. SG&A expense in the Specialty Metal Fabrication business declined $1.2 million due to the closing of the Kentucky facility as a result of the completion of the Ford Crew Cab and DRW program in December 1997, 4 5 a one time dividend from the Ohio State Workers Compensation Fund of $0.6 million and the reduction of $1.1 million in certain freight accruals no longer required at the vehicle conversion operation, partially offset by a $0.7 million increase in personnel costs associated with increased volume and the opening of the new facility in Plano, Texas, the settlement of an employment related lawsuit approximating $0.6 million and residual medical costs of $0.2 million related to the 1997 Kentucky facility closing. SG&A expenses in the OEM Heat Transfer Systems Business increased $0.4 million due to the full year impact of administrative costs associated with the business move to Jackson, Mississippi. Corporate office costs increased $1.0 million due to the recognition of a $0.5 million reserve against a note receivable accepted in a 1994 asset sale transaction, $0.4 million increase in incentive accruals and the write-off of deferred debt costs of $0.1 million due to the renegotiation of the Company's bank credit facility. Net interest expense increased to $3.3 million in 1998 from $3.1 million in 1997 as a result of higher borrowings under the bank credit facility. The Company's effective tax rate of 43.3% is comprised of the U.S. Federal income tax rate plus the estimated aggregate effective rate for foreign, state and local income taxes. The rate increased from the 1997 rate of 40.8% principally as a result of higher non-deductible expenses in relation to taxable income in 1998. Net income for 1998 was $1.6 million, or $0.25 per basic common share and $0.24 per diluted common share compared with $7.9 million, or $1.20 per basic and diluted common share in 1997. Before the net impact of legal settlement costs, the workers' compensation dividend and the note receivable reserve, earnings were $1.9 million, or $0.29 per basic common share and $0.28 per diluted common share in 1998. Before the net impact of plant closure costs, net income for 1997 was $10.2 million, or $1.55 per basic and diluted common share. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES The Company is party to a Revolving Credit Agreement (the "Revolving Credit Agreement") with five banking institutions that provides for secured borrowings or the issuance of letters of credit in an aggregate amount not to exceed $75 million. The Revolving Credit Agreement is secured by a blanket first perfected security interest in substantially all of the Company's assets, plus a pledge of the stock of the Company's subsidiaries. The Revolving Credit Agreement expires on July 1, 2003. The security interest in the Company's assets and the pledge of the Company's subsidiaries' stock are eligible for release if the Company achieves certain senior debt ratings or if certain financial ratios are met and maintained. At December 31, 1999, the Company did not meet the financial ratios required for the release of the security interest. Available borrowings under the Revolving Credit Agreement are determined by a borrowing base consisting of the Company's eligible (i) accounts receivable, (ii) inventory and (iii) fixed assets, as adjusted by an advance rate. The aggregate amount of borrowings under the Revolving Credit Agreement was automatically reduced by $0.5 million at the end of each quarter through June 30, 1999 and then by $1.25 million at the end of each quarter through December 31, 1999. On December 9, 1999, the Company entered into the Third Amendment to the Revolving Credit Agreement (the "Third Amendment") to return the amount of secured borrowings or the issuance of letters of credit to the original aggregate amount of $75 million and reschedule the automatic reductions and amend the leverage coverage ratio covenant. Pursuant to the Third Amendment, the aggregate amount of available borrowings is automatically reduced by $5 million on November 30, 2000 and December 31, 2000 and by $1.5 million at the end of each quarter beginning March 31, 2001 through June 30, 2003. The Revolving Credit Agreement bears interest at variable rates based, at the Company's option, on either (a) a Eurodollar loan rate, plus an applicable margin based upon the ratio of the Company's total funded debt to earnings before interest, taxes, depreciation and amortization ("EBITDA"), or (b) the higher of (i) the 5 6 BankBoston, N.A. base lending rate or (ii) one-half of one percent above the Federal Funds Effective Rate, as defined, plus an applicable margin based upon the ratio of the Company's total funded debt to EBITDA. A commitment fee of .25% or .375% based upon the ratio of the Company's total funded debt to EBITDA on the average daily unused portion of the Revolving Credit Agreement is payable quarterly, in arrears. The Revolving Credit Agreement contains financial covenants which, among other things, require maintenance of a minimum tangible net worth and debt service coverage and a maximum level of debt to EBITDA and debt to net worth, as well as covenants which place limits on dividend payments in excess of $2.0 million per year and capital expenditures in excess of 140% of such year's depreciation expense. On June 25, 1999, the Company entered into a Waiver and Second Amendment to the Revolving Credit Agreement (the "Waiver and Second Amendment"), amending the interest coverage ratio covenant and the liabilities to net worth ratio covenant and waived compliance with the interest coverage ratio and the liabilities to net worth ratio covenants for the quarter ended March 31, 1999. Total debt outstanding at December 31, 1999 under the Revolving Credit Agreement was $49.7 million. In addition, the Company had floating rate Industrial Revenue Bonds totaling $13 million outstanding at December 31, 1999, which were fully secured by letters of credit. Outstanding letters of credit totaled approximately $17.6 million at December 31, 1999. During 1999, net borrowings under the Revolving Credit Agreement increased by $19.7 million. In 1998, net borrowings under the Revolving Credit Agreement increased by $4.4 million. During 1997, net borrowings under the Company's then existing credit facility decreased by $1.2 million. Net income plus adjustment to reconcile net income to net cash provided by operating activities, which includes, among other things, depreciation and amortization, resulted in $4.9 million of operating cash flows. During 1999, the Company required $7.7 million of cash to support its operations. Net income, plus adjustments to reconcile net income to net cash used in operating activities, which includes, among other things, depreciation and amortization, resulted in $11.2 million of operating cash flows. The Company invested $24.6 million in inventory and $7.1 million in accounts receivable to support new product introduction and its expansion in the air conditioning parts and fabricated metal enclosures businesses. An increase in accounts payable and accrued expenses provided $13.1 million in cash. During 1998, the Company generated $9.3 million of cash from operations. Net income plus total adjustments to reconcile net income to net cash provided by operating activities, which includes, among other things, depreciation and amortization, resulted in $10.5 million of operating cash flow. Accounts receivable collections and inventories generated cash of $4.4 million and $1.1 million, respectively. Cash was used to reduce accounts payable and accrued expenses by $4.6 million. During 1997, the Company generated $10.0 million of cash from operations. Net income plus total adjustments to reconcile net income to net cash provided by operating activities resulted in $18.4 million of operating cash flow. The Company's investment in accounts receivable and inventory required cash of $3.2 million and $5.5 million, respectively. Capital spending totaled $8.2 million, $8.6 million and $7.2 million in 1999, 1998 and 1997, respectively. In 1999, the Company purchased all of the outstanding stock of A/C Plus for $2.25 million in cash and issued a note payable for $0.25 million payable on the second anniversary of the closing. In 1998, the Company purchased all of the outstanding stock of Evap for approximately $6.0 million, which included an initial cash payment of $3.0 million and the issuance of $3.0 million of TransPro, Inc. Series B Convertible Redeemable 6 7 Preferred Stock (the "Series B Preferred Stock"). In 1997, the Company acquired substantially all of the assets and assumed certain specified liabilities of VMS for approximately $1.0 million. In 1999, cash dividends of $1.3 million and $0.1 million were paid to holders of common stock and Series B Preferred Stock, respectively. In both 1998 and 1997, cash dividends of $1.3 million were paid to holders of common stock. The future liquidity and ordinary capital needs of the Company in the short term are expected to be met from operations. The Company's working capital requirements peak during the second and third quarters, reflecting the normal seasonality in the Aftermarket Heating and Cooling Systems business. The Company believes that its cash flow from operations, together with borrowings under its current Revolving Credit Agreement, will be adequate to meet its near term anticipated ordinary capital expenditures and working capital requirements. However, the Company believes that the amount of borrowings available under the Revolving Credit Agreement will not be sufficient to meet the capital needs for major growth initiatives. The Company intends to explore financing alternatives, including obtaining a new line of credit with sufficient borrowing capacity or securing additional sources of capital. It is also possible that additional liquidity may be obtained through the disposition of business operations, although there can be no assurance that any such disposition would occur on a timely basis, or at all. No assurance can be given that the Company will be successful in obtaining a new line of credit or securing additional sources of capital on favorable terms, or at all. ACQUISITIONS Effective February 1, 1999, the Company purchased 100% of the outstanding stock of A/C Plus, an air conditioning compressor remanufacturer located in Arlington, Texas. A/C Plus had sales of approximately $2.9 million in fiscal 1998. The transaction was structured with a purchase price of $2.25 million paid in cash and a promissory note of $0.25 million payable on the second anniversary of the closing. Concurrent with the purchase, the Company repaid $0.5 million in working capital debt on behalf of A/C Plus. The purchase price and working capital debt repayment were financed through the Company's Revolving Credit Agreement. The acquisition was accounted for as a purchase. Goodwill of $2.2 million was recorded in connection with the transaction and is being amortized over 20 years. The results of A/C Plus have been included in the Company's consolidated financial statements from the date of acquisition. Effective August 1, 1998, the Company acquired 100% of the outstanding stock of Evap. Evap is an Arlington, Texas manufacturer and distributor of replacement automotive air conditioning parts. Evap's fiscal 1997 sales were $6.6 million. The transaction was structured with an initial purchase price of $6.0 million consisting of $3.0 million cash at closing and 30,000 shares of Series B Preferred Stock, with an opportunity for a maximum additional payout of $3.75 million based upon the future earnings performance of the Evap business. Concurrent with the purchase, the Company repaid $1.7 million of working capital debt on behalf of Evap. The Company financed the cash portion of the initial purchase price and the working capital debt repayment with borrowings under the Revolving Credit Agreement. The acquisition was accounted for as a purchase and goodwill of $3.3 million, which is being amortized over 20 years, was recorded as part of the transaction. Evap's results have been included in the Company's consolidated financial statements from the date of acquisition. The Series B Preferred Stock has an initial liquidation preference of $3.0 million, which is reflected in paid-in capital on the Company's consolidated balance sheets. The potential additional payout based on future earnings will take the form of an increase in the liquidation preference of the Series B Preferred Stock. The Series B Preferred Stock is non-transferable and is entitled to cumulative dividends of 2% per annum during the first year after acquisition, 3.5% per annum during the second year and 5.0% per annum thereafter. The Series B Preferred Stock is convertible into TransPro common stock at the rate of 50% on the third anniversary of the acquisition, an additional 25% on the fourth anniversary and the remaining 25% on the 7 8 fifth anniversary; and is redeemable after the fifth anniversary at the liquidation preference at the time of redemption. The Series B Preferred Stock is convertible into TransPro common stock based upon the liquidation preference and the market value of TransPro common stock at the time of conversion, as further defined in the purchase agreement. The aggregate number of shares of TransPro common stock to be issued upon conversion of all the Series B Preferred Stock may not exceed 7% of the total number of shares of TransPro common stock outstanding, after giving effect to the conversion. The market value of the TransPro common stock in excess of the 7% limitation, if any, will be paid in cash. In December 1997 the Company acquired substantially all of the assets and assumed certain specified liabilities of VMS for a cash payment of approximately $1.0 million. VMS is located in Ontario, Canada and specializes in utility van conversions. VMS reported fiscal 1997 sales of $1.6 million. The acquisition was accounted for as a purchase and VMS's results have been included in the Company's consolidated financial statements from the date of acquisition. The Company financed the purchase of the VMS assets by borrowings under its then existing bank credit facility and recorded $0.4 million of goodwill related to the transaction, which is being amortized over 20 years. END OF CREW CAB AND DUAL REAR WHEEL CONTRACT Until December 1997, the Company's largest customer was Ford. The Company was the exclusive supplier of the cab portion of Ford's Crew Cab pickup truck and the rear fender panel for Ford's DRW pickup truck under a five-year contract that expired on December 31, 1995. The Company's manufacturing facility in Louisville, Kentucky was dedicated solely to the production of Crew Cab and DRW components. During 1997, Ford accounted for approximately 27% of the Company's net sales and a significantly greater portion of the Company's total 1997 profits as a result of the higher margins and significantly lower selling, distribution and administrative costs associated with the Ford contract compared with the average of the Company's other businesses. In early 1996, Ford notified the Company that it planned to move the production of Crew Cab and DRW components in-house in late 1997. Attempts to develop new business for the Louisville plant were unsuccessful and, accordingly, the Company closed the Louisville plant in December 1997. IMPACT OF THE YEAR 2000 ISSUE The Company has completed the implementation of a Year 2000 compliant information systems platform. There was no significant interruption of normal operations resulting from the date change to the year 2000. The total cost of the Year 2000 project was approximately $3.2 million of which $2.2 million was for capitalizable hardware and software costs, which was funded by borrowings. INFLATION The overall impact of the low rate of inflation in recent years has resulted in no significant impact on labor costs and general services utilized by the Company. The principal raw materials used in the Company's original equipment and replacement radiator product lines are copper and brass. The principal raw material used in the Company's specialty metal fabrication business product lines is steel. Copper, brass, steel and other primary metals used in the Company's business are generally subject to commodity pricing and variations in the market prices for such materials. Although these materials are available from a number of vendors, the Company has chosen to concentrate its sources with a limited number of long-term suppliers. The Company typically executes purchase orders for its copper and brass requirements approximately three to six months prior to the 8 9 actual delivery date. The purchase price for such copper, brass, and steel is established at the time such orders are placed by the Company and not at the time of delivery. The Company manages its metals commodity pricing by attempting to pass through any cost increases to its customers. Although the Company has been successful in passing through price increases to its customers to offset a portion of past cost increases of copper, brass, and steel, there is no assurance that the Company will continue to be successful in raising prices in the future. The Company does not use hedging transactions with respect to its metals consumption. ENVIRONMENTAL MATTERS The Company is subject to Federal, state and local laws designed to protect the environment and believes that, as a general matter, its policies, practices and procedures are properly designed to reasonably prevent risk of environmental damage and financial liability to the Company. During 1998, the Company was fined approximately $0.1 million in connection with certain pre-treatment water containment violations at its Jackson, Mississippi facility. The issues were satisfactorily resolved. The Company believes it is reasonably possible that environmental related liabilities might exist with respect to an industrial site formerly occupied by the Company. Based upon environmental site assessments, the Company believes that the cost of any potential remediation for which the Company may ultimately be responsible will not have a material adverse effect on the consolidated financial position, results of operations, or liquidity of the Company. FORWARD-LOOKING STATEMENTS AND CAUTIONARY FACTORS Statements included in Management's Discussion and Analysis of Financial Condition and Results of Operations, which are not historical in nature, are forward-looking statements. Such forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements regarding the Company's future business prospects, revenues, orders, sales and liquidity are subject to certain risks, uncertainties and other factors that could cause actual results to differ materially from those projected or suggested in the forward-looking statements, including but not limited to: business conditions and growth in the general economy and automotive and truck business, the impact of competitive products and pricing, changes in customer and product mix, failure to obtain new customers, retain existing customers or changes in the financial stability of customers, changes in the cost of raw materials, components or finished products, and changes in interest rates. 9 10 TRANSPRO, INC. CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except per share amounts) YEAR ENDED DECEMBER 31, 1999 1998 1997 -------- -------- -------- Sales $261,577 $240,065 $288,866 Cost of sales 197,379 185,547 222,182 -------- -------- -------- Gross margin 64,198 54,518 66,684 Selling, general, and administrative expenses 52,509 48,287 46,278 Plant and business consolidation and closure costs 325 -- 3,958 -------- -------- -------- Income from operations 11,364 6,231 16,448 Interest expense, net 4,444 3,326 3,140 -------- -------- -------- Income before taxes 6,920 2,905 13,308 Provision for income taxes 104 1,258 5,433 -------- -------- -------- Net income $ 6,816 $ 1,647 $ 7,875 ======== ======== ======== Basic earnings per common share $ 1.03 $ 0.25 $ 1.20 ======== ======== ======== Diluted earnings per common share $ .96 $ 0.24 $ 1.20 ======== ======== ======== Weighted average common shares - basic 6,573 6,593 6,553 ======== ======== ======== Weighted average common shares and equivalents - diluted 7,089 6,804 6,586 ======== ======== ========
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in thousands) YEAR ENDED DECEMBER 31, 1999 1998 1997 ------- ------- ------- Net income $ 6,816 $ 1,647 $ 7,875 ------- ------- ------- Other comprehensive income (loss), net of tax: Foreign currency translation 11 9 (26) Minimum pension liability adjustment 1,111 (559) (326) ------- ------- ------- Other comprehensive income (loss) 1,122 (550) (352) ------- ------- ------- Comprehensive income $ 7,938 $ 1,097 $ 7,523 ======= ======= =======
The accompanying notes are an integral part of these consolidated financial statements. 10 11 TRANSPRO, INC. CONSOLIDATED BALANCE SHEETS
(Amounts in thousands) DECEMBER 31, 1999 1998 --------- --------- ASSETS Current assets: Cash and cash equivalents $ 222 $ 345 Accounts receivable (less allowances of $2,128 and $2,390) 41,689 34,173 Inventories: Raw materials 23,385 14,765 Work in process 11,310 7,124 Finished goods 50,651 37,886 --------- --------- Total inventories 85,346 59,775 --------- --------- Deferred income taxes 5,520 2,641 Other current assets 2,546 3,200 --------- --------- Total current assets 135,323 100,134 --------- --------- Property, plant and equipment: Land and land improvements 814 808 Buildings 17,822 17,662 Machinery and equipment 82,066 74,319 Leasehold improvements 2,464 2,124 --------- --------- 103,166 94,913 Less: accumulated depreciation and amortization (62,539) (55,426) --------- --------- Net property, plant and equipment 40,627 39,487 --------- --------- Intangible assets (net of amortization of $810 and $348) 7,632 6,093 Other assets 2,313 2,813 --------- --------- Total assets $ 185,895 $ 148,527 ========= =========
The accompanying notes are an integral part of these consolidated financial statements. 11 12 TRANSPRO, INC. CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share and per share amounts) DECEMBER 31, 1999 1998 --------- --------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 26,395 $ 14,797 Accrued insurance 3,820 4,404 Accrued salaries and wages 4,486 4,823 Accrued taxes 1,558 541 Accrued expenses 5,490 5,393 --------- --------- Total current liabilities 41,749 29,958 --------- --------- Long-term liabilities: Long-term debt 61,928 42,197 Retirement and postretirement obligations 5,442 7,482 Deferred income taxes 1,912 973 Other liabilities 393 50 --------- --------- Total liabilities 111,424 80,660 --------- --------- Commitments and contingent liabilities --------- --------- Stockholders' equity: Preferred stock, $.01 par value: Authorized 2,500,000 shares; issued and outstanding as follows: Series A junior participating preferred stock, $.01 par value: Authorized 200,000 shares; issued and outstanding; none at December 31, 1999 and 1998 -- -- Series B convertible preferred stock, $.01 par value: Authorized 30,000 shares; issued and outstanding; 30,000 at December 31, 1999 and 1998 (liquidation preference $3,000) -- -- Common stock, $.01 par value: Authorized 17,500,000 shares at December 31, 1999 and 1998; 6,669,446 shares issued in 1999 and 1998 and 6,597,335 shares outstanding in 1999 and 1998 66 66 Paid-in capital 55,074 55,074 Unearned compensation (66) (113) Retained earnings 20,318 14,883 Accumulated other comprehensive income (895) (2,017) Treasury stock, at cost: 72,111 shares at December 31, 1999 and 1998 (26) (26) --------- --------- Total stockholders' equity 74,471 67,867 --------- --------- Total liabilities and stockholders' equity $ 185,895 $ 148,527 ========= =========
The accompanying notes are an integral part of these consolidated financial statements. 12 13 TRANSPRO, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands) YEAR ENDED DECEMBER 31, 1999 1998 1997 -------- -------- -------- Cash flows from operating activities: Net income $ 6,816 $ 1,647 $ 7,875 -------- -------- -------- Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 7,541 6,782 8,193 Deferred income taxes (3,373) 677 (797) Provision for losses - accounts receivable 268 1,394 1,790 Write-off of fixed assets related to plant closure -- -- 1,379 -------- -------- -------- Total adjustments to reconcile net income to net cash provided by (used in) operating activities 4,436 8,853 10,565 -------- -------- -------- Change in operating assets and liabilities, net of acquisitions: Accounts receivable (7,612) 4,413 (3,217) Inventories (24,640) 1,068 (5,454) Accounts payable 11,280 437 1,397 Accrued expenses 1,850 (5,004) (1,504) Other 187 (2,146) 347 -------- -------- -------- Total change in operating assets and liabilities, net of acquisitions (18,935) (1,232) (8,431) -------- -------- -------- Net cash (used in) provided by operating activities (7,683) 9,268 10,009 -------- -------- -------- Cash flows from investing activities: Capital expenditures (8,200) (8,582) (7,214) Sales and retirements of fixed assets, net 11 73 318 Acquisitions, net of cash acquired and transaction costs (2,118) (2,764) (967) -------- -------- -------- Net cash used in investing activities (10,307) (11,273) (7,863) -------- -------- -------- Cash flows from financing activities: Exercise of stock options -- -- 24 Purchase of treasury stock -- -- (26) Dividends paid (1,375) (1,348) (1,321) Net borrowings (repayments) under Revolving Credit Agreement 19,242 3,105 (1,150) -------- -------- -------- Net cash provided by (used in) financing activities 17,867 1,757 (2,473) -------- -------- -------- Net decrease in cash and cash equivalents (123) (248) (327) Cash and cash equivalents at beginning of period 345 593 920 -------- -------- -------- Cash and cash equivalents at end of period $ 222 $ 345 $ 593 ======== ======== ======== Supplemental disclosures of cash flow information: Interest paid $ 4,213 $ 3,064 $ 3,209 ======== ======== ======== Taxes paid (net of refunds) $ 1,861 $ 1,041 $ 5,722 ======== ======== ======== Supplemental schedule of non-cash investing and financing activities: The Company acquired A/C Plus, Evap, and VMS in 1999, 1998 and 1997, respectively; the details of which are further described in Note 14. In connection with these transactions, liabilities were assumed and preferred stock issued, as follows: Fair value of assets acquired $ 3,060 $ 5,679 $ 1,000 Cash Paid (2,250) (3,000) (1,000) ======== ======== ======== Liabilities assumed $ 810 $ 2,679 $ -- ======== ======== ======== Preferred stock issued $ -- $ 3,000 $ -- ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 13 14 TRANSPRO, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (Amounts in thousands, except share and per share amounts)
TREASURY COMMON STOCK PREFERRED STOCK STOCK SHARES VALUE SHARES VALUE VALUE ---------- ---------- ---------- ---------- ---------- Balance December 31, 1996 6,591,835 $ 66 -- $ -- $ -- Net income -- -- -- -- -- Common stock dividends declared ($0.20 per share) -- -- -- -- -- Treasury stock purchased (2,807) -- -- (26) -- Restricted stock issued 18,400 -- -- -- -- Stock options exercised 4,032 -- -- -- -- Amortization of unearned compensation -- -- -- -- -- Net change in translation adjustment -- -- -- -- -- Net change in adjustment for minimum pension liability -- -- -- -- -- Other adjustments -- -- -- -- -- ---------- ---------- ---------- ---------- ---------- Balance December 31, 1997 6,611,460 66 -- -- (26) Net Income -- -- -- -- -- Issuance of preferred stock related to an acquisition -- -- 30,000 -- -- Common stock dividends declared ($0.20 per share) -- -- -- -- -- Preferred stock dividends declared -- -- -- -- -- Restricted stock issued 4,800 -- -- -- -- Restricted stock canceled (18,925) -- -- -- -- Amortization of unearned compensation -- -- -- -- -- Net change in translation adjustment -- -- -- -- -- Net change in adjustment for minimum pension liability -- -- -- -- -- ---------- ---------- ---------- ---------- ---------- Balance December 31, 1998 6,597,335 66 30,000 -- (26) Net income -- -- -- -- -- Common stock dividends declared ($0.20 per share) -- -- -- -- -- Preferred stock dividends declared -- -- -- -- -- Amortization of unearned compensation -- -- -- -- -- Net change in translation adjustment -- -- -- -- -- Net change in adjustment for minimum pension liability -- -- -- -- -- ========== ========== ========== ========== ========== Balance December 31, 1999 6,597,335 $ 66 30,000 $ -- $ (26) ========== ========== ========== ========== ==========
ACCUMULATED OTHER TOTAL PAID-IN RETAINED UNEARNED COMPREHENSIVE STOCKHOLDERS' CAPITAL EARNINGS COMPENSATION INCOME EQUITY ---------- ---------- ---------- ---------- ---------- Balance December 31, 1996 $ 52,061 $ 8,030 $ (346) $ (1,115) $ 58,696 Net income -- 7,875 -- -- 7,875 Common stock dividends declared ($0.20 per share) -- (1,321) -- -- (1,321) Treasury stock purchased -- -- -- -- (26) Restricted stock issued 142 -- (142) -- -- Stock options exercised 24 -- -- -- 24 Amortization of unearned compensation -- -- 99 -- 99 Net change in translation adjustment -- -- -- (26) (26) Net change in adjustment for minimum pension liability -- -- -- (326) (326) Other adjustments -- -- 20 -- 20 ---------- ---------- ---------- ---------- ---------- Balance December 31, 1997 52,227 14,584 (369) (1,467) 65,015 Net Income -- 1,647 -- -- 1,647 Issuance of preferred stock related to an acquisition 3,000 -- -- -- 3,000 Common stock dividends declared ($0.20 per share) -- (1,323) -- -- (1,323) Preferred stock dividends declared -- (25) -- -- (25) Restricted stock issued 37 -- (37) -- -- Restricted stock canceled (190) -- 190 -- -- Amortization of unearned compensation -- -- 103 -- 103 Net change in translation adjustment -- -- -- 9 9 Net change in adjustment for minimum pension liability -- -- -- (559) (559) ---------- ---------- ---------- ---------- ---------- Balance December 31, 1998 55,074 14,883 (113) (2,017) 67,867 Net income -- 6,816 -- -- 6,816 Common stock dividends declared ($0.20 per share) -- (1,321) -- -- (1,321) Preferred stock dividends declared -- (60) -- -- (60) Amortization of unearned compensation -- -- 47 -- 47 Net change in translation adjustment -- -- -- 11 11 Net change in adjustment for minimum pension liability -- -- -- 1,111 1,111 ========== ========== ========== ========== ========== Balance December 31, 1999 $ 55,074 $ 20,318 $ (66) $ (895) $ 74,471 ========== ========== ========== ========== ==========
The accompanying notes are an integral part of these consolidated financial statements. 14 15 TRANSPRO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - THE COMPANY TransPro, Inc. (the "Company") is a manufacturer and supplier of heat transfer components and systems, replacement automotive air conditioning parts and specialty fabricated metal products for a variety of Aftermarket and Original Equipment Manufacturing ("OEM") automotive, truck and industrial equipment applications and performs vehicle conversions. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Consolidation: The Company's consolidated financial statements include the accounts of all subsidiaries. Intercompany balances and transactions have been eliminated. Cash Equivalents: The Company considers all highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents. Inventories: Inventories are valued at the lower of cost (first-in, first-out method) or market. Property, Plant and Equipment: Property, plant and equipment is recorded at cost. Ordinary maintenance and repairs are expensed; replacements and betterments are capitalized. Land improvements, buildings and machinery are depreciated over their estimated useful lives under the straight-line method. Estimated useful lives for buildings are 40 years and for machinery and equipment are between three and ten years. The provision for amortization of leasehold improvements is based on the lease term or the estimated useful lives of the improvements, whichever is shorter. Upon retirement or disposition of plant and equipment, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in the Company's consolidated statements of income. Goodwill: Goodwill represents the excess of cost over the fair value of assets acquired and is being amortized using the straight-line method over 20 years. The Company periodically estimates the future undiscounted cash flows of the businesses to which goodwill relates to ensure that the carrying value of such goodwill has not been impaired. The Company's existing goodwill relates to the acquisitions of A/C Plus in 1999, Evap in 1998, VMS in 1997 and Rahn, Industries in 1996. Impairment of Long-Lived Assets: The Company, in the event that circumstances arise that indicate that its fixed assets may be impaired, would perform an evaluation of asset impairment in accordance with Statement of Financial Accounting Standards No. 121 ("SFAS No. 121"), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." The assets' carrying values would be compared to the estimated future undiscounted cash flows of the assets to determine if a write-down is required. There were no impaired long-lived assets at December 31, 1999. Foreign Currency Translation: Generally, assets and liabilities of the Company's foreign subsidiaries are translated into U.S. dollars at the current rate of exchange, while revenues and expenses are translated at the average exchange rate during the year. Property, plant and equipment, and its associated depreciation, and stockholders' equity are translated at the historical rate. The functional currency of the Company's manufacturing operations in Mexico is the U.S. dollar and therefore any adjustments related to currency translations are included in results from operations. The Securities and Exchange Commission has deemed that Mexico ceased to be a highly inflationary economy, effective for quarters beginning after January 1, 1999. As 15 16 the Company currently uses the U.S. dollar as its functional currency, there was no material impact on the financial position of the Company. Adjustments from translating other foreign subsidiaries' financial statements are excluded from the results of operations and are reported as a separate component of stockholders' equity. Revenue Recognition: The Company recognizes revenues from product sales upon shipment to its customers. Research and Development: Research and development costs are expensed as incurred. Financial Instruments: The Company was a party to an interest rate swap agreement which expired on December 29, 1997 involving the exchange of fixed and floating rate interest payments. The difference to be paid or received was accrued as interest rates changed and was recognized over the life of the agreement as an adjustment to interest expense. Income Taxes: The Company accounts for income taxes in accordance with the provisions of Statement of Financial Accounting Standards No. 109 ("SFAS No. 109"), "Accounting for Income Taxes," under which deferred income taxes are recorded to reflect the tax consequences on future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each year-end. Earnings Per Share: Earnings per share are computed in accordance with the provisions of Statement of Financial Accounting Standards No. 128 ("SFAS No. 128"), "Earnings Per Share," whereby net earnings are divided by the weighted average number of shares of common stock outstanding, less shares of non-vested restricted stock to arrive at basic earnings common share. The diluted impact of stock options, restricted stock grants and conversion of preferred stock are included in the weighted average number of shares of common stock and equivalents outstanding to arrive at diluted earnings per common share. Other Comprehensive Income: The Company has reported other comprehensive income in accordance with the provisions of Statement of Financial Accounting Standards No. 130 ("SFAS No. 130"), "Reporting Comprehensive Income." Other comprehensive income represents the change in the equity of the business from non-owner sources and is presented in a separate consolidated financial statement. Segment Information: The Company has reported segment information in accordance with Statement of Financial Accounting Standards No. 131 ("SFAS No. 131"), "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 131 requires disclosure of financial data based on the "management approach" to business decision making. The management approach is based on internal information used for making operating decisions and assessing the performance of the Company's reportable segments. SFAS No. 131 also requires disclosures regarding products and services. Segment information is reported separately in these notes to the consolidated financial statements. Use of Estimates: The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Reclassification: Certain items in prior years have been reclassified due to current year disclosures. 16 17 NOTE 3 - SEGMENT AND BUSINESS INFORMATION In 1998, the Company adopted SFAS No. 131. Prior year segment information has been restated to present the Company's three reportable segments - Aftermarket Heating and Cooling Systems, OEM Heat Transfer Systems and Specialty Metal Fabrication. Aftermarket Heating and Cooling Systems product lines include complete radiators and radiator cores, heaters, air conditioning condensers, air conditioning compressors and other air conditioning parts for aftermarket customers. The OEM Heat Transfer Systems business provides manufactured specialized heavy-duty equipment radiators, charge air coolers and oil coolers to original equipment manufacturers. Specialty Metal Fabrication products and services include fabrication of metal racking, enclosures and cabinetry and the fabrication and installation of customized van interiors and vehicle conversion components. The accounting policies of the segments are the same as those described in Note 2, with the exception of the following: Intercompany Sales: Segment data includes inter-segment sales, at cost plus a standard intercompany markup. Allocations: Certain other expenses are allocated between segments based on their respective use of shared facilities and resources, such as information technology, human resources and finance and accounting functions. The Company evaluates the performance of its segments and allocates resources accordingly based on income from operations. The tables below set forth information about reported segments for the years ended December 31:
(Amounts in thousands) CONSOLIDATED REVENUES INCOME FROM OPERATIONS BUSINESS SEGMENT 1999 1998 1997 1999 1998 1997 - --------------------------------------- --------- --------- --------- -------- -------- -------- Aftermarket Heating and Cooling Systems $ 166,235 $ 156,335 $ 143,273 $ 14,064 $ 9,944 $ 6,299 OEM Heat Transfer Systems 39,328 39,257 38,864 (1,324) (1,955) (4,629) Specialty Metal Fabrication 56,014 44,473 106,729 3,002 3,693 19,206 Inter-segment revenues: Aftermarket Heating and Cooling Systems 5,868 3,678 3,443 -- -- -- OEM Heat Transfer Systems 16 112 543 -- -- -- Specialty Metal Fabrication -- -- -- -- -- -- Elimination of inter-segment revenues (5,884) (3,790) (3,986) -- -- -- --------- --------- --------- -------- -------- -------- Segment totals 261,577 240,065 288,866 15,742 11,682 20,876 Corporate expenses -- -- -- (4,378) (5,451) (4,428) --------- --------- --------- -------- -------- -------- Consolidated Totals $ 261,577 $ 240,065 $ 288,866 $ 11,364 $ 6,231 $ 16,448 ========= ========= ========= ======== ======== ========
DEPRECIATION AND (Amounts in thousands) TOTAL ASSETS BY SEGMENT CAPITAL EXPENDITURES AMORTIZATION EXPENSES ---------------------------------- ---------------------------- ---------------------------- BUSINESS SEGMENT 1999 1998 1997 1999 1998 1997 1999 1998 1997 - --------------------------- -------- -------- -------- ------ ------ ------ ------ ------ ------ Aftermarket Heating and Cooling Systems $121,385 $ 97,336 $ 89,022 $4,272 $4,412 $3,216 $4,293 $3,995 $3,422 OEM Heat Transfer Systems 19,853 18,144 18,831 1,921 1,756 1,900 1,506 1,260 1,265 Specialty Metal Fabrication 33,156 24,882 27,189 2,006 2,365 2,098 1,555 1,346 3,329 -------- -------- -------- ------ ------ ------ ------ ------ ------ Segment totals 174,394 140,362 135,042 8,199 8,533 7,214 7,354 6,601 8,016 Corporate 11,501 8,165 9,498 1 49 -- 187 181 177 -------- -------- -------- ------ ------ ------ ------ ------ ------ Consolidated totals $185,895 $148,527 $144,540 $8,200 $8,582 $7,214 $7,541 $6,782 $8,193 ======== ======== ======== ====== ====== ====== ====== ====== ======
17 18 Business consolidation and closure costs included in earnings before interest and taxes for the years ended December 31, are as follows:
(Amounts in thousands) BUSINESS SEGMENT 1999 1998 1997 - --------------------------------------- ---- ----- ------ Aftermarket Heating and Cooling Systems $325 $ -- $ 336 OEM Heat Transfer Systems -- -- 422 Specialty Metal Fabrication -- -- 3,200 ==== ===== ====== Totals $325 $ -- $3,958 ==== ===== ======
In 1999 and 1998, AutoZone accounted for 12% and 11%, respectively, of net sales and comprised 29% of total accounts receivable at December 31, 1999 and 1998. These sales were all in the Aftermarket Heating and Cooling Systems segment. During 1997, Ford accounted for approximately 27% of the Company's net sales and were in the Specialty Metal Fabrication business. In 1999, 1998 and 1997, the Company had no other customers who individually accounted for greater than 10% of the Company's net sales. Export sales from North America were below 10% in each of the years reported. The Company has a manufacturing facility in Mexico and a vehicle conversion plant in Canada. During 1999 and 1998, the Company had $5.1 million and $4.8 million of sales in Mexico, respectively and $4.3 million and $1.4 million of sales in Canada, respectively. Substantially all other sales were based in the U.S. Substantially all assets of the Company are located in the U.S. NOTE 4 - PLANT AND BUSINESS CONSOLIDATION AND CLOSURE COSTS In 1999, the Company recorded $0.3 million in plant and business consolidation and closure costs, primarily for severance, related to the closing of the Company's Philadelphia, Pennsylvania and Atlanta, Georgia replacement automotive condenser manufacturing plants. In 1997, the Company recorded approximately $4.0 million of plant and business consolidation and closure costs. Of this amount, approximately $3.2 million related to expenses in connection with the closing of the Company's Louisville, Kentucky plant as a result of Ford's decision to move the production of Crew Cab and DRW components in-house in late 1997. These costs included approximately $1.5 million of severance and other employee termination costs for the nearly 200 employees at the Louisville plant and approximately $1.7 million for facility lease cancellation penalties and the abandonment of the fixed assets utilized at the plant. In addition, the Company recorded $1.3 million in plant and business consolidation and closure costs related to the consolidation of the OEM and Aftermarket heat transfer organizations; the closing of the New Haven, Connecticut OEM heat transfer product manufacturing plant and movement of such manufacturing operations to Jackson, Mississippi; and the closing of the Peru, Illinois Aftermarket Manufacturing operations and movement of such manufacturing operations to Mexico. These charges were offset by the reversal of previously recorded employee termination benefits of $0.5 million related to the transfer of manufacturing operations to Jackson, Mississippi and Mexico. 18 19 NOTE 5 - INCOME TAXES Information with respect to income taxes is as follows:
(Amounts in thousands) 1999 1998 1997 ------- ------- ------- Current: Federal $ 2,207 $ 83 $ 4,929 Foreign 152 123 -- State and local 321 (7) 1,301 ------- ------- ------- 2,680 199 6,230 ------- ------- ------- Deferred: Federal 439 804 (630) Foreign (189) -- -- State and local 32 255 (167) Benefit related to GDI restructuring (2,858) -- -- ------- ------- ------- (2,576) 1,059 (797) ------- ------- ------- Provision for income taxes $ 104 $ 1,258 $ 5,433 ======= ======= =======
A reconciliation of the provision for income taxes at the Federal statutory rate of 34% in 1999, 35% in 1998 and 34% in 1997, to the reported tax provisions is as follows:
(Amounts in thousands) 1999 1998 1997 ------- ------ ------ Provision computed at the Federal statutory rate $ 2,353 $1,017 $4,657 State and local income taxes, net of Federal income tax benefit 278 161 738 Operating loss not benefitted 124 -- -- Benefit related to GDI restructuring (2,858) -- -- Permanent differences 144 106 48 Other 63 (26) (10) ------- ------ ------ Provision for income taxes $ 104 $1,258 $5,433 ======= ====== ======
Significant components of deferred income tax assets and liabilities as of December 31, are as follows:
(Amounts in thousands) 1999 1998 ------- ------- Deferred tax assets: Inventories $ 2,300 $ 469 Pensions and deferred compensation 2,208 2,691 Postretirement benefits 459 524 Allowance for bad debts 854 432 Self insurance reserves 1,186 823 Warranty reserves 224 338 Accrued vacation 805 355 Other 452 477 ------- ------- Total deferred tax assets 8,488 6,109 ------- ------- Deferred tax liabilities: Depreciation (4,075) (2,470) Investment in joint venture -- (1,425) Deferred charges (437) (457) Other (368) (89) ------- ------- Total deferred tax liabilities (4,880) (4,441) ------- ------- Net deferred tax assets $ 3,608 $ 1,668 ======= =======
The earnings of certain foreign subsidiaries are considered permanently reinvested in the foreign operations and therefore no provision has been made for U.S. taxes related to these subsidiaries. During 1999, the Company's Canadian subsidiary generated a net operating loss carry-forward of $0.4 million, which held a 50% valuation allowance as of December 31, 1999. This carry-forward expires in seven years. Income before taxes from United States and Foreign sources is as follows:
(Amounts in thousands) 1999 1998 1997 ------- ------- ------ United States $7,437 $2,619 $13,043 Foreign (517) 286 265 ------ ------ ------- $6,920 $2,905 $13,308 ====== ====== =======
19 20 NOTE 6 - EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per common share:
(Amounts in thousands, except per share amounts) BASIC EARNINGS PER COMMON SHARE CALCULATION 1999 1998 1997 ------- ------- ------- Numerator: Net income $ 6,816 $ 1,647 $ 7,875 Less: preferred stock dividends (60) (25) -- ------- ------- ------- Net income available to common stockholders $ 6,756 $ 1,622 $ 7,875 ======= ======= ======= Denominator: Weighted average common shares 6,597 6,615 6,604 Non-vested restricted stock (24) (22) (51) ------- ------- ------- Denominator for basic earnings per common share - adjusted weighted average common shares 6,573 6,593 6,553 ======= ======= ======= Basic earnings per common share $ 1.03 $ .25 $ 1.20 ======= ======= ======= DILUTED EARNINGS PER COMMON SHARE CALCULATION Numerator: Net income available to common stockholders $ 6,756 $ 1,622 $ 7,875 Add back: preferred stock dividend 60 25 -- ------- ------- ------- Net income available to stockholders and assumed conversions $ 6,816 $ 1,647 $ 7,875 ======= ======= ======= Denominator: Adjusted weighted average common shares 6,573 6,593 6,553 Diluted effect of stock options and restricted non-vested stock 19 4 33 Diluted effect of Series B Preferred Stock 497 207 -- ------- ------- ------- Denominator for diluted earnings per common share - adjusted weighted average common shares and equivalents 7,089 6,804 6,586 ======= ======= ======= Diluted earnings per common share $ .96 $ .24 $ 1.20 ======= ======= =======
There were outstanding options to purchase common stock excluded from the diluted calculation because their exercise price exceeded the average market price of TransPro common stock during the respective earnings periods. The shares excluded and the average market prices were as follows:
1999 1998 1997 -------- -------- ------- Options 347,115 362,000 15,000 Average market prices $ 6.22 $ 7.39 $ 9.16
NOTE 7 - FAIR VALUES OF FINANCIAL INSTRUMENTS Financial Accounting Standards Board ("FASB") Statements of Financial Accounting Standards No. 107, "Disclosure about Fair Value of Financial Instruments" and No. 119, "Disclosure about Derivative Financial Instruments and Fair Value of Financial Instruments," are part of a continuing process by the FASB to improve information regarding financial instruments. The following methods and assumptions were used by the Company in estimating the fair value of each class of financial instruments: Cash and Cash Equivalents: The carrying amount reported in the balance sheet for cash and cash equivalents approximates its fair value. Long-Term Debt: The carrying amounts of the Company's long-term debt either approximate fair value or are estimated using discounted cash flow analysis based on the Company's current incremental borrowing rates for similar types of borrowing arrangements. 20 21 Letters of Credit: The Company utilizes letters of credit to back its industrial revenue bonds, certain insurance policies and certain trade purchases, which totaled $13.4 million, $3.6 million and $0.6 million, respectively, at December 31, 1999. The letters of credit reflect fair value as a condition of their underlying purpose. Concentration of Credit Risk: The Company is subject to a concentration of credit risk primarily with its trade and notes receivable. The Company grants credit to certain customers who meet pre-established credit requirements, and generally requires no collateral from its customers. Estimates of potential credit losses are provided for in the Company's consolidated financial statements and are within management's expectations and industry averages. As of December 31, 1999 the Company had no other significant concentrations of credit risk. NOTE 8 - DEBT In July 1998, the Company entered into a Revolving Credit Agreement (the "Revolving Credit Agreement") with five banking institutions to replace its 1995 Revolving Credit and Term Loan Agreement (the "1995 Credit Agreement") in order to increase the amount of and extend the commitment period for bank financing. The Revolving Credit Agreement provides for secured borrowings or the issuance of letters of credit in an aggregate amount not to exceed $75 million. The Revolving Credit Agreement is secured by a blanket first perfected security interest in substantially all of the Company's assets, plus a pledge of the stock of the Company's subsidiaries. The Revolving Credit Agreement expires on July 1, 2003. The security interest in the Company's assets and the pledge of the Company's subsidiaries' stock are eligible for release if the Company achieves certain senior debt ratings or if certain financial ratios are met and maintained. At December 31, 1999, the Company did not meet the financial ratios required for the release of the security interest. Available borrowings under the Revolving Credit Agreement are determined by a borrowing base consisting of the Company's eligible (i) accounts receivable, (ii) inventory and (iii) fixed assets, as adjusted by an advance rate. The aggregate amount of available borrowings under the Revolving Credit Agreement was automatically reduced by $0.5 million at the end of each quarter through June 30, 1999 and then by $1.25 million at the end of each quarter through December 31, 1999. The Revolving Credit Agreement was amended (the "Third Amendment") on December 9, 1999. The Third Amendment, effective in January 2000, increases the commitment amount back to $75 million with automatic reductions of $5.0 million each on November 30, 2000 and December 31, 2000; and then by $1.5 million at the end of each quarter beginning March 31, 2001 through June 30, 2003. The Revolving Credit Agreement bears interest at variable rates based, at the Company's option, on either (a) a Eurodollar loan rate, plus an applicable margin based upon the ratio of the Company's total funded debt to earnings before interest, taxes, depreciation and amortization ("EBITDA"), or (b) the higher of (i) the BankBoston, N.A. base lending rate or (ii) one-half of one percent above the Federal Funds Effective Rate, as defined, plus an applicable margin based upon the ratio of the Company's total funded debt to EBITDA. A commitment fee of .25% or .375% based upon the ratio of the Company's total funded debt to EBITDA on the average daily unused portion of the Revolving Credit Agreement is payable quarterly, in arrears. The Revolving Credit Agreement contains financial covenants which, among other things, require maintenance of a minimum tangible net worth and debt service coverage and a maximum level of debt to EBITDA and debt to net worth, as well as covenants which place limits on dividend payments in excess of $2.0 million per year and capital expenditures in excess of 140% of such year's depreciation expense. On June 25, 1999, the Company entered into the Waiver and Second Amendment to the Revolving Credit Agreement (the "Waiver and Second Amendment"), amending the interest coverage ratio covenant and the liabilities to net 21 22 worth ratio covenant and waiving compliance with the interest coverage ratio and the liabilities to net worth ratio covenant for the quarter ended March 31, 1999. Long-term debt consisted of the following at December 31:
(Amounts in thousands) 1999 1998 -------- -------- Revolver $ 49,683 $ 29,911 Industrial revenue bonds: Floating rate bond due 2010 8,000 8,000 Floating rate bond due 2013 5,000 5,000 Unamortized debt expense (755) (714) -------- -------- Total long-term debt $ 61,928 $ 42,197 ======== ========
Total debt outstanding at December 31, 1999 under the Revolving Credit Agreement was $49.7 million. The average interest rate for the Revolving Credit Agreement approximated 6.55% in 1999 and 7.80% in 1998. In addition, the Company has Industrial Revenue Bonds totaling $13.0 million at December 31, 1999, which are fully secured by letters of credit. The floating rate industrial revenue bonds bear interest at a rate based on a short-term tax-exempt bonds index, as defined in the bonds, and approximated 4.11% at December 31, 1999 and 3.60% at December 31, 1998. The average interest rate for all industrial revenue borrowings approximated 3.58% during 1999 and 3.66% during 1998. Long-term debt (excluding the unamortized debt expense) at December 31, 1999 matures after 2002. NOTE 9 - COMMITMENTS AND CONTINGENCIES Leases: The Company's leases consist primarily of manufacturing and distribution facilities and equipment and expire principally between 2000 and 2004. A number of leases require that the Company pay certain executory costs (taxes, insurance, and maintenance) and contain renewal and purchase options. Annual rental expense for operating leases approximated $5.2 million 1999, $4.7 million in 1998 and $3.7 million in 1997. Future minimum payments under noncancelable operating leases as of December 31, 1999 were as follows:
(Amounts in thousands) 2000 $4,904 2001 2,468 2002 1,535 2003 501 2004 126 ------ Total $9,534 ======
Insurance: The Company is self-insured for health care, workers compensation, general liability and product liability up to predetermined amounts above which third party insurance applies. The Company is contingently liable to insurance carriers under its workers compensation and liability policies and has reserved approximately $2.4 million to pay such claims. Legal Proceedings: Various legal actions are pending against or involve the Company with respect to such matters as product liability, casualty and employment related claims. In the opinion of management, after review and consultation with counsel, the aggregate liability, if any, that ultimately may be incurred in excess of amounts already provided should not have a material adverse effect on the consolidated financial position, results of operations, or liquidity of the Company. 22 23 Severance Agreements: The Company has a Key Employee Severance Policy and has entered into severance agreements with key employees in order to provide financial assistance if employment with the Company is terminated under the circumstances set forth in the policy and the agreements. The policy and agreements provide for formalized severance benefits in the event of non-voluntary termination. Environmental Matters: The Company is subject to Federal, state and local laws designed to protect the environment and believes that, as a general matter, its policies, practices and procedures are properly designed to reasonably prevent risk of environmental damage and financial liability to the Company. The Company believes it is reasonably possible that environmental related liabilities might exist with respect to one industrial site formerly occupied by the Company. Based upon environmental site assessments, the Company believes that the cost of any potential remediation, other than amounts already provided, for which the Company may ultimately be responsible will not have a material adverse effect on the consolidated financial position, results of operations, or liquidity of the Company. Collective Bargaining Agreements: The Company had approximately 2,562 employees at December 31, 1999. Of these employees, approximately 1,160 were covered by collective bargaining agreements, which expire at different times. The Company has successfully renegotiated three collective bargaining agreements over the last several years and feels labor relations are good, but there can be no assurance that work stoppages will not occur in the future. NOTE 10 - STOCK COMPENSATION PLANS STOCK OPTIONS At December 31, 1999, the Company had two stock option plans under which key employees and directors have options to purchase TransPro common stock. Under the 1995 Stock Plan (the "Stock Plan") options are granted at fair market value on the date of grant and are exercisable cumulatively at the rate of 50% two years from the date of grant, 75% three years from the date of grant, and 100% four years from the date of grant. Options granted under the Stock Plan expire 10 years from the date of the grant. Awards of restricted stock may also be granted to key employees under the Stock Plan and may be issued in addition to, or in lieu of stock options. The total number of shares of common stock with respect to which stock options may be granted and restricted shares may be awarded under the Stock Plan shall not exceed 600,000. At December 31, 1999 and 1998, respectively, 504,992 and 495,052 common shares were reserved for stock options and restricted shares granted under the Stock Plan. The weighted average remaining contractual life on outstanding stock options was 7.6 years and 7.3 years at December 31, 1999 and 1998, respectively. The Directors Stock Option Plan (the "Directors Plan") provides for the purchase price per share of common stock for which each option is exercisable to be equal to 100% of the fair market value of the common stock covered thereby on the date of grant. Subject to certain acceleration provisions, each option granted under the Directors Plan will be exercisable 50% after two years from the date of grant, 75% after three years from the date of grant and 100% after four years from the date of grant. Options granted under the Directors Plan expire 10 years from the date of grant. The total number of shares of common stock with respect to which options may be granted under the Directors Plan may not exceed 100,000 shares. At December 31, 1999 and 1998, respectively, 77,800 and 56,400 common shares were reserved for stock options granted under the Directors Plan. The Company applies APB Opinion No. 25 "Accounting for Stock Issued to Employees" and related interpretations in accounting for its plans. Accordingly, no compensation cost has been recognized in the financial statements. Had compensation cost for the Company's plans been determined based on the fair value at the grant dates for awards under the plans, consistent with Statement of Financial Accounting Standards No. 23 24 123 "Accounting for Stock Based Compensation," the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below:
(Amounts in thousands, except per share amounts) 1999 1998 1997 --------- --------- --------- Net income As reported $ 6,816 $ 1,647 $ 7,875 Pro forma 6,579 1,484 7,590 Basic earnings As reported 1.03 .25 1.20 per common share Pro forma .99 .22 1.16 Diluted earnings As reported .96 .24 1.20 per common share Pro forma .93 .22 1.15
The fair value of each option grant is estimated for the above disclosure on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:
1999 1998 1997 ------- ------- ------- Dividend yield 2.20% 2.20% 2.20% Expected volatility 52.08% 48.77% 30.20% Risk-free interest rate 6.54% 4.80% 6.69% Expected life 6 Years 6 Years 6 Years
Information regarding the Stock Plan and the Directors Plan is as follows:
OPTION PRICE RANGE ----------------------------------------- NUMBER OF WEIGHTED STOCK PLAN OPTIONS LOW AVERAGE HIGH - ---------- ------- --- ------- ---- Outstanding at December 31, 1997 392,767 $ 3.72 $ 7.97 $11.75 Granted 112,100 5.88 6.25 7.75 Canceled (64,352) 6.24 7.91 11.75 ------- Outstanding at December 31, 1998 440,515 3.72 7.64 11.75 Granted 97,500 5.50 5.50 5.56 Canceled (57,049) 5.88 7.53 11.75 ------- Outstanding at December 31, 1999 480,966 3.72 7.22 11.75 ======= Exercisable at December 31, 1999 207,466 3.72 8.35 11.75 =======
OPTION PRICE RANGE --------------------------------------- NUMBER OF WEIGHTED DIRECTORS PLAN OPTIONS LOW AVERAGE HIGH - -------------- ------- --- ------- ---- Outstanding at December 31, 1997 56,400 $ 7.75 $ 9.70 $11.75 Granted -- -- -- -- ------ Outstanding at December 31, 1998 56,400 7.75 9.70 11.75 Granted 21,400 5.50 5.50 5.50 ------ Outstanding at December 31, 1999 77,800 5.50 8.54 11.75 ====== Exercisable at December 31, 1999 48,375 7.75 9.99 11.75 ======
OPTIONS OUTSTANDING OPTIONS EXERCISABLE --------------------------- -------------------------- WEIGHTED AVERAGE WEIGHTED NUMBER WEIGHTED REMAINING AVERAGE EXERCISABLE AVERAGE OPTIONS OUTSTANDING SUMMARY OUTSTANDING LIFE EXERCISE AS OF EXERCISE RANGE OF EXERCISE PRICES @ 12/31/99 (IN YEARS) PRICE 12/31/99 PRICE - --------------------------------------- ----------- ---------- --------- ----------- --------- $3.72 - $5.88 211,651 9.00 $ 5.64 10,751 $ 5.34 $7.50 - $11.75 347,115 6.60 8.49 245,090 8.81 ------- ------- 558,766 255,841 ======= =======
24 25 RESTRICTED STOCK Restricted stock awarded vests four years from the date of the award. Unearned compensation, representing the fair value of the restricted shares at the date of the award, is charged to income over a four year period beginning when the stock is issued, or over the period of actual vesting of such shares, whichever period is shorter. Compensation expense with respect to all restricted shares amounted to $47,000 in 1999, $103,000 in 1998, and $99,000 in 1997. RESTRICTED STOCK AWARDS Outstanding at December 31, 1997 50,586 Awarded 4,800 Exercised (12,435) Canceled (18,925) ------- Outstanding at December 31, 1998 24,026 Awarded -- Vested -- ------- Outstanding at December 31, 1999 24,026 =======
NOTE 11 - STOCKHOLDER RIGHTS PLAN On September 14, 1995, the Board of Directors adopted a stockholder rights plan (the "Rights Plan"), under which one Right (the "Right") was issued and distributed for each share of common stock. The Rights Plan is intended to protect shareholders against unsolicited attempts to acquire control of the Company that do not offer what the Company believes to be an adequate price to all shareholders. Each Right will entitle the registered holder to purchase from the Company one one-hundredth of a share of Series A Preferred Stock at a price of $60.00 per one one-hundredth of a share of Series A Preferred Stock subject to adjustment. The description and terms of the Rights are set forth in a Rights Agreement between the Company and The First National Bank of Boston, as Rights Agent. The Rights will become exercisable only if a person or group acquires or obtains the right to acquire beneficial ownership of 20% or more of the outstanding shares of common stock (an "Acquiring Person") or 10 days (or such later date as the Company's Board of Directors may determine) following the commencement by a person or group of a tender or exchange offer which would result in such person or group becoming an Acquiring Person. The earlier of such dates is called the "Rights Distribution Date." Until the Rights Distribution Date, the Rights will be evidenced by the certificates for shares of common stock. In the event that any person or group of affiliated or associated persons becomes an Acquiring Person, proper provision shall be made so that each holder of a Right, other than Rights that are or were owned beneficially by the Acquiring Person (which, from and after the later of the Rights Distribution Date and the date of the earliest of any such events, will be void), will thereafter have the right to receive, upon exercise thereof at the then current exercise price of the Right, that number of shares of common stock having a market value of two times the exercise price of the Right. 25 26 NOTE 12 - RETIREMENT AND POSTRETIREMENT PLANS RETIREMENT PLANS: The Company has noncontributory defined benefit pension plans covering the majority of its full-time U.S. employees. Non-union employees at the Company's GDI operations are covered by a cash balance defined benefit plan. The Company maintains a non-qualified retirement plan to supplement benefits for designated employees whose pension plan benefits are limited by the provisions of the Internal Revenue Code. It is the Company's policy to make contributions to qualified retirement plans sufficient to meet the minimum funding requirements of applicable laws and regulations. The assets of the plans consist principally of equity securities, fixed income instruments and investment contracts with insurance companies. The Company has recorded an additional minimum liability at the end of each year representing the excess of the accumulated benefit obligations over the fair value of plan assets and accrued pension liabilities. To the extent possible, intangible assets representing unrecognized prior service costs have offset the liabilities. The balance of the liability at the end of the period is reported as a separate reduction of stockholders' equity, net of tax benefits. During 1998, the Company purchased participating annuity contracts for certain plan participants for the payment of future benefits. The Company remains subject to any significant risks and rewards associated with the benefit obligations on these contracts. In 1999, 1998 and 1997 GDI contributed $0, $13,000 and $22,000 respectively, to multi-employer pension plans covering certain union employees based on a stated amount per hour. These contributions are deposited directly to the trustee and are not included in the net periodic pension cost amounts presented in the tables that follow. POSTRETIREMENT PLANS: The Company accounts for the cost of its postretirement health care and life insurance benefits in accordance with Statement of Financial Accounting Standards No. 106 ("SFAS No. 106"), "Employers' Accounting for Postretirement Benefits Other Than Pensions," which requires that the Company accrue for such postretirement benefits based on actuarially determined costs recognized over the period from the date of hire to the full eligibility date of employees who are expected to qualify for these benefits. The Company provides health care and life insurance benefits for certain retired employees who reach retirement age while working for the Company. 26 27 The following tables set forth the Company's plans' combined funded status and amounts recognized in the Company's consolidated balance sheets:
RETIREMENT PLANS POSTRETIREMENT PLANS -------------------------- ----------------------- YEAR ENDED DECEMBER 31, ------------------------------------------------------------ (Amounts in thousands) 1999 1998 1999 1998 -------- -------- ------- ------- CHANGE IN BENEFIT OBLIGATION Benefit obligation at January 1 $ 30,423 $ 29,021 $ 951 $ 1,171 Plan amendment -- -- (61) -- Service cost 1,139 1,067 18 16 Interest cost 1,865 1,981 56 65 Plan participants' contribution -- -- 8 15 Actuarial (gain)loss (4,933) 2,844 143 (195) Liability for participating annuity contracts -- (1,960) -- -- Actual gross benefits paid (1,713) (2,530) (144) (121) -------- -------- ------- ------- Benefit obligation at December 31 $ 26,781 $ 30,423 $ 971 $ 951 ======== ======== ======= ======= CHANGE IN PLAN ASSETS Fair value of plan assets at January 1 $ 26,294 $ 25,685 $ -- $ -- Actual return on plan assets 3,796 3,381 -- -- Company contributions 846 1,019 136 106 Plan participant contributions -- -- 8 15 Purchase of participating annuity contracts -- (1,261) -- -- Actual gross benefits paid (1,713) (2,530) (144) (121) -------- -------- ------- ------- Fair value of plan assets at December 31 $ 29,223 $ 26,294 $ -- $ -- ======== ======== ======= ======= RECONCILIATION OF FUNDED STATUS Funded status at December 31 $ 2,442 $ (4,129) $ (971) $ (951) Unrecognized transition asset (96) (149) -- -- Unrecognized prior service cost (benefit) 760 847 (61) -- Unrecognized net (gain)loss (6,778) 69 (203) (344) -------- -------- ------- ------- Accrued benefit cost $ (3,672) $ (3,362) $(1,235) $(1,295) ======== ======== ======= ======= AMOUNTS RECOGNIZED IN STATEMENTS OF FINANCIAL POSITION Prepaid asset $ 147 $ -- $ -- $ -- Accrued benefit liability (5,625) (7,271) (1,235) (1,295) Intangible asset 571 630 -- -- Accumulated other comprehensive amount 1,235 3,279 -- -- -------- -------- ------- ------- Net amount recognized at December 31 $ (3,672) $ (3,362) $(1,235) $(1,295) ======== ======== ======= ======= WEIGHTED-AVERAGE ASSUMPTIONS AS OF DECEMBER 31 Discount rate 7.75% 6.50% 7.75% 6.50% Return on assets 9.00% 9.00% N/A N/A Initial trend rate N/A N/A 8.80% 9.20% Salary progression 4.25% 4.00% N/A N/A Ultimate health care trend rate N/A N/A 5.00% 5.00% Years to ultimate trend N/A N/A 10 11 Average future working lifetime (in years) 12.67 16.64 N/A N/A
27 28
(Amounts in thousands) RETIREMENT PLANS POSTRETIREMENT PLANS ------------------------------------- ----------------------------- YEAR ENDED DECEMBER 31, ------------------------------------------------------------------------- 1999 1998 1997 1999 1998 1997 ------- ------- ------- ---- ---- ---- COMPONENTS OF NET PERIODIC BENEFIT COST Service cost $ 1,139 $ 1,067 $ 1,026 $ 18 $ 16 $ 27 Interest cost 1,865 1,981 1,916 56 65 85 Expected return on plan assets (2,015) (2,022) (1,956) -- -- -- Plan settlement -- 98 -- -- -- -- Amortization and deferral of net loss(gain) 202 135 88 (34) (35) (32) ------- ------- ------- ---- ---- ---- Net periodic benefit cost $ 1,191 $ 1,259 $ 1,074 $ 40 $ 46 $ 80 ======= ======= ======= ==== ==== ====
Assumed healthcare cost trend rates may have a significant effect on the amounts reported for the healthcare plans. A one-percentage-point change in the assumed healthcare cost trend rates would have the following effects.
(Amounts in thousands) 1% POINT INCREASE 1% POINT DECREASE ----------------- ----------------- Effect on total of service and interest cost components $ 3 $ (3) Effect of postretirement benefit obligations $ 34 $ (33)
The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for the pension plans with accumulated benefit obligations in excess of plan assets were $5.2 million, $5.2 million and $3.7 million, respectively as of December 31, 1999 and $13.2 million, $13.2 million and $9.0 million, respectively as of December 31, 1998. 401(k) INVESTMENT PLANS Under the Company's 401(k) Plans, substantially all of the Company's non-union employees and certain union employees are eligible to save, by payroll deductions, a portion of their salaries. Effective January 1, 1996, the amount saved may be invested in the Company's common stock. Depending upon the Plan, the Company matches certain percentages of the amounts saved by the employees. The Company's matching contributions to the 401(k) Plans were approximately $389,000 in 1999, $416,000 in 1998, and $458,000 in 1997. 28 29 NOTE 13 - QUARTERLY FINANCIAL DATA (UNAUDITED) (Amounts in thousands, except price and per share amounts)
YEAR ENDED DECEMBER 31, 1999 ---------------------------- 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr ------- ------- -------- ------- Sales $57,278 $70,145 $ 71,555 $62,599 Gross margin 14,470 18,092 17,665 13,971 Net (loss) income 505 5,110 1,490 (289) Basic (loss) earnings per common share .08 .78 .23 (.04) Diluted (loss) earnings per common share .07 .72 .21 (.04) Market price of common stock: High $ 6-1/4 $ 6-3/8 $7-15/16 $ 6-7/8 Low 4-5/16 4-3/8 4-15/16 5
YEAR ENDED DECEMBER 31, 1998 ---------------------------- 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr ------- ------- ------- ------- Sales $ 50,587 $65,603 $68,535 $ 55,340 Gross margin 11,574 15,590 16,400 10,954 Net (loss) income (139) 1,446 1,091 (751) Basic (loss) earnings per common share (.02) .22 .17 (.11) Diluted (loss) earnings per common share (.02) .22 .16 (.11) Market price of common stock: High $ 8-15/16 $ 8-3/4 $7-7/16 $ 6-1/4 Low 7 7-7/16 5-5/16 4-3/8
The above table summarizes quarterly financial information for 1999 and 1998. In management's opinion, all adjustments (which include only normal recurring adjustments) necessary to present fairly the information for such quarters have been reflected above. Certain amounts may not agree to consolidated annual amounts due to quarterly rounding. NOTE 14 - ACQUISITIONS Effective February 1, 1999, the Company purchased 100% of the outstanding stock of A/C Plus, an air conditioning compressor re-manufacturer located in Arlington, Texas. A/C Plus had sales of approximately $2.9 million in fiscal 1998. The transaction was structured with a purchase price of $2.25 million in cash, including transaction costs, and a promissory note of $0.25 million payable on the second anniversary of the closing. Concurrent with the purchase, the Company repaid $0.5 million in working capital debt on behalf of A/C Plus. The purchase price and working capital repayment were financed through the Company's Revolving Credit Agreement. The acquisition was accounted for as a purchase. Goodwill of $2.2 million was recorded in connection with the transaction and is being amortized over 20 years. A/C Plus' results are included in the Company's consolidated financial statements from the date of acquisition. Effective August 1, 1998, the Company acquired 100% of the outstanding stock of Evap. Evap is an Arlington, Texas manufacturer and distributor of replacement automotive air conditioning parts. Evap's fiscal 1997 sales were $6.6 million. The transaction was structured with an initial purchase price of $6.0 million, consisting of $3.0 million cash at closing and 30,000 shares of TransPro, Inc. Series B Preferred Stock (the "Series B Preferred Stock"), with an opportunity for a maximum additional payout of $3.75 million based upon the future earnings performance of the Evap business. Concurrent with the purchase, the Company repaid $1.7 million of working capital debt on behalf of Evap. The Company financed the cash portion of the initial purchase price and the working capital debt repayment with borrowings under the Revolving Credit Agreement. The acquisition was accounted for as a purchase and goodwill of $3.3 million, which is being amortized over 20 years, was recorded as part of the transaction. Evap's results are included in the Company's consolidated 29 30 financial statements from the date of acquisition. The Series B Preferred Stock has an initial liquidation preference of $3.0 million, which is reflected in paid-in capital on the Company's consolidated balance sheet. The potential additional payout based on future earnings will take the form of an increase in the liquidation preference of the Series B Preferred Stock. The Series B Preferred Stock is non-transferable and is entitled to cumulative dividends of 2% per annum during the first year after acquisition, 3.5% per annum during the second year and 5.0% per annum thereafter. The Series B Preferred Stock is convertible into TransPro common stock at the rate of 50% on the third anniversary of the acquisition, an additional 25% on the fourth anniversary and the remaining 25% on the fifth anniversary; it is redeemable after the fifth anniversary at the liquidation preference at the time of redemption. The Series B Preferred Stock is convertible into TransPro common stock based upon the liquidation preference and the market value of TransPro common stock at the time of conversion, as further described in the purchase agreement. The aggregate number of shares of TransPro common stock to be issued upon conversion of all the Series B Preferred Stock may not exceed 7% of the total number of shares of TransPro common stock outstanding, after giving effect to the conversion, as further described in the purchase agreement. The average market value of the TransPro common stock in excess of the 7% limitation, if any, will be paid in cash. Consolidated results as of December 31, 1998 on a pro forma basis, assuming the acquisition of Evap as of the beginning of 1998, are as follows:
(Amounts in thousands) 1998 -------- Net sales $247,356 -------- Gross margin 57,323 -------- Income from operations 7,222 -------- Net Income $ 2,122 ======== Basic earnings per common share $ 0.32 ======== Diluted earnings per common share $ 0.31 ========
In December 1997, the Company acquired substantially all of the assets and assumed certain specified liabilities of VMS for approximately $1.0 million. VMS is located in Ontario, Canada and specializes in utility van conversions. VMS reported sales of $1.6 million for the fiscal year ended February 1997. The acquisition was accounted for as a purchase and VMS's results have been included in the consolidated financial statements from the date of acquisition. The Company financed the purchase of VMS by borrowings under the 1995 Credit Agreement and recorded $0.4 million of goodwill related to the transaction, which is being amortized over 20 years. 30 31 NOTE 15 - COMPREHENSIVE INCOME The following table sets forth the income tax expense or (benefit) related to each item of other comprehensive income:
(Amounts in thousands) PRE-TAX TAX EXPENSE NET-OF- AMOUNT OR (BENEFIT) TAX AMOUNT ------ ------------ ---------- YEAR ENDED DECEMBER 31, 1999 Foreign currency translation adjustment $ 19 $ 8 $ 11 Minimum pension liability adjustment 1,841 730 1,111 ------- ----- ------- Other comprehensive income $ 1,860 $ 738 $ 1,122 ======= ===== ======= YEAR ENDED DECEMBER 31, 1998 Foreign currency translation adjustment $ 15 $ 6 $ 9 Minimum pension liability adjustment (944) (385) (559) ------- ----- ------- Other comprehensive income $ (929) $(379) $ (550) ======= ===== ======= YEAR ENDED DECEMBER 31, 1997 Foreign currency translation adjustment $ (44) $ (18) $ (26) Minimum pension liability adjustment (548) (222) (326) ------- ----- ------- Other comprehensive income $ (592) $(240) $ (352) ======= ===== =======
The following is a roll forward of the accumulated other comprehensive income balances:
(Amounts in thousands) MINIMUM ACCUMULATED FOREIGN PENSION OTHER CURRENCY LIABILITY COMPREHENSIVE TRANSLATION ADJUSTMENT INCOME ----------- ---------- ------------- BALANCE DECEMBER 31, 1996 $(182) $ (933) $(1,115) Current period change (26) (326) (352) ----- ------- ------- BALANCE DECEMBER 31, 1997 (208) (1,259) (1,467) Current period changes 9 (559) (550) ----- ------- ------- BALANCE DECEMBER 31, 1998 (199) (1,818) (2,017) Current period change 11 1,111 1,122 ----- ------- ------- BALANCE DECEMBER 31, 1999 $(188) $ (707) $ (895) ===== ======= =======
31 32 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of TransPro, Inc. In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, comprehensive income, changes in stockholders' equity, and of cash flows present fairly, in all material respects, the financial position of TransPro, Inc. and its subsidiaries at December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP Hartford, Connecticut February 14, 2000 32 EX-10.14 4 EX-10.14 1 Exhibit 10.14 SETTLEMENT AND RELEASE AGREEMENT This Settlement and Release Agreement is dated as of this 3rd day of February, 1998 and is between TransPro, Inc., (the "COMPANY") and John C. Martin, III (the "EMPLOYEE"). WHEREAS, the EMPLOYEE has had an employment relationship with the COMPANY; and WHEREAS, disputes among the parties have arisen in connection with EMPLOYEE's employment; and WHEREAS, the parties desire to compromise and settle any and all disputes which have arisen upon the terms hereinafter set forth. NOW THEREFORE, in consideration of the mutual promises of the parties and other valuable and sufficient consideration, and intending hereby to compromise and settle any and all such disputes, the parties hereto agree as follows: 1. EMPLOYEE's employment with the COMPANY will terminate as of November 6, 1998, and he will perform no services for the COMPANY thereafter. 2. (A) In settlement of any and all possible claims, which arise or might arise pursuant to EMPLOYEE's employment with the COMPANY, the COMPANY will pay EMPLOYEE as follows: 1. Six (6) months of severance pay at the rate of $14,500.00 per month, paid bi-weekly, notwithstanding any other employment or earnings. Following this initial six (6) month period of severance, EMPLOYEE will be eligible to receive up to an additional twelve (12) months of severance. Severance pay received during this twelve (12) months will be reduced by any salary received by the EMPLOYEE from another employer and any consulting compensation received by the EMPLOYEE from a prospective employer (other than consulting compensation received by an independent consulting business conducted by EMPLOYEE). Any salary or consulting compensation received by the EMPLOYEE shall be reported by the EMPLOYEE to the COMPANY. 2. On or before February 15, 1999 EMPLOYEE will be paid his accrued and earned but not used vacation. 2 3. For purposes of the COMPANY's 401k savings plan and pension plans EMPLOYEE will no longer be deemed to be an employee as of November 6, 1998. 4. EMPLOYEE will receive all rights and benefits he has earned and accrued under the TransPro, Inc. 401k Savings Plan and pension plans. 5. The use of the automobile furnished to the EMPLOYEE by the COMPANY shall continue until the earlier of (1) May 6, 1999, or (2) the date the EMPLOYEE obtains employment with another employer, and the EMPLOYEE agrees that he will not remove such automobile to any state other than the state in which he was last employed by the COMPANY or the State of New York, and that upon any such removal the COMPANY shall be entitled to immediate possession of such automobile and shall no longer furnish the use of such automobile to the EMPLOYEE. 6. During the period in which the EMPLOYEE is receiving the severance payments the COMPANY shall arrange to provide the EMPLOYEE with life, disability, accident and group health insurance benefits substantially similar to those which the EMPLOYEE was receiving immediately prior to termination. Benefits received by the EMPLOYEE pursuant to this paragraph shall be reduced to the extent comparable benefits actually are received by the EMPLOYEE from any other source during the severance period, and any such benefits actually received by the EMPLOYEE shall be reported to the COMPANY. 7. 10,855 replacement Allen Performance Restricted Shares will vest and will be turned over to the EMPLOYEE without restriction based upon the following formula: number of full months worked between December 31, 1996 and November 6, 1998 (date of termination) divided by 60 times the original grant of 29,603 shares. All other stock options and restricted stock grants previously awarded to the EMPLOYEE shall be governed by the terms and conditions of the TransPro, Inc. 1995 Stock Option Plan and the terms and conditions of each Restricted Stock Agreement and Non-Qualified Option granted to the Employee. (B) As consideration for the release of claims by EMPLOYEE in paragraph 6, hereof, the COMPANY will pay EMPLOYEE the following, which are over and above what is otherwise required under the Employment Agreement between the EMPLOYEE and the COMPANY: 1. The use of the automobile furnished to the EMPLOYEE by the COMPANY shall continue an additional six (6) months until the earlier of (1) November 1, 1999, or (2) the date the EMPLOYEE obtains 3 employment with another employer, and there shall be no geographical restriction regarding the use of the automobile. 2. The COMPANY will provide twelve (12) months of Outplacement assistance with a professional Outplacement Firm and the COMPANY shall pay the fee for the Outplacement Firm's services on behalf of the EMPLOYEE. 3. The COMPANY will pay EMPLOYEE 11/12ths of any annual incentive compensation he would have earned under the TransPro Annual Incentive Plan for 1998 performance as determined by the Nominating & Compensation Committee of the Board of Directors of TransPro, Inc. Payment for any award granted will be made no later than April 30, 1999. 3. Except as described in paragraph 2 of this Settlement and Release Agreement, EMPLOYEE expressly admits, acknowledges and agrees that no other payments shall be made by the COMPANY to him and that he has no entitlement to, or any right to make any claim for, any additional payments by the COMPANY of any kind or nature or under any circumstances whatsoever. 4. EMPLOYEE acknowledges receiving this Settlement and Release Agreement on February 2, 1999 and that he has twenty-one (21) days from that date, i.e. February 22, 1999, to consider the terms of this Settlement and Release Agreement. 5. This Settlement and Release Agreement is revocable by EMPLOYEE for seven (7) days after it is signed by him. This Settlement and Release Agreement shall not be effective or enforceable until the period for revocation has expired. 6. As a material inducement to the COMPANY to enter into this Settlement and Release Agreement, EMPLOYEE hereby releases, for himself and for his heirs, executors, administrators, successors and assigns, the COMPANY and its current and former parents, affiliates, subsidiaries, partners, stockholders, and their current and former officers, directors, employees, agents, representatives, successors and assigns, from any and all liabilities whatsoever, including, but not limited to, any claim for any compensation or benefits under the SEVERANCE AGREEMENT, those specifically arising directly or indirectly out of his employment relationship with the COMPANY, and from any rights, claims in law or equity for wrongful discharge, discriminatory treatment under any local, state or federal law, regulation or order (including without limitation the Age Discrimination in Employment Act of 1967 ("ADEA") the Civil Rights Act of 1964, the Civil Rights Act of 1866, the Connecticut Fair Employment Practices Act), the Employee Income Security Act of 1974, the Americans With Disabilities Act of 1992) personal injury, contract, defamation, mental anguish, injury to health and/or personal reputation and any other claim arising out of his employment with the COMPANY or the termination of his employment, or under any other facts or circumstances whatsoever. The release of claims in this Settlement and Release Agreement shall extend to 4 claims of any nature whatsoever, including claims that are known or unknown, suspected or unsuspected. This release shall not effect any pension rights and benefits EMPLOYEE has earned or accrued under the TransPro, Inc. 401k Savings Plan, or any other obligation provided for in this Agreement. 7. EMPLOYEE agrees and covenants not to initiate a lawsuit or commence any sort of action or proceedings against the COMPANY or its current and former parents, affiliates, subsidiaries, partners, stockholders, or their current and former officers, directors, employees, agents, representatives, successors and assigns at any time in the future based on any right or claim that arose or could have arisen on or before the effective date of this Settlement Agreement and Release. 8. EMPLOYEE recognizes that during the course of, and for the purpose of his employment, by the COMPANY he was informed of or helped originate proprietary information, some of which was confidential; and that the COMPANY considers at least the following types of information to be confidential and the property of the COMPANY: proposed inventions, engineering designs, new product plans and market studies, manufacturing know-how, prices and pricing strategies, profit margins and financial performance reports and financial performance targets, names and addresses of suppliers, customers and consultants, and customer problems, preferences, needs and complaints. EMPLOYEE also recognizes that there may be other types of confidential information, such as that which is proprietary to others and provided to the COMPANY under a secrecy agreement. The EMPLOYEE agrees to immediately return any such confidential information in his possession to COMPANY; agrees to hold and protect in strict confidence and to not use or disclose for any purpose to any person who is not then an employee of the COMPANY, any of the COMPANY's confidential or proprietary information; and further agrees not to cause or assist any other person to use, publish or disclose any of said information, except, however, such of the foregoing information as shall have become generally available to the public without any action, cause or fault of the EMPLOYEE's. 9. EMPLOYEE agrees that during the period in which severance payments are being received EMPLOYEE will not: (a) offer, perform, or attempt to perform services for any other person, firm or corporation if any of those services would use or disclose or cause disclosure of any of the confidential or proprietary information described in paragraph 8 above, and thereby would assist or benefit competition against any line of the COMPANY's business; (b) cause, assist or encourage any solicitation of a customer of the COMPANY for a sale in competition with the COMPANY, and (c) cause, assist or encourage any recruitment of any employee of the COMPANY to become employed with another, and (d) directly or indirectly, whether as principal, agent, stockholder, employee, consultant or in any other capacity, engage in or offer, perform or attempt to perform any services or have a financial interest in any firm, corporation, or enterprise which is in competition with any business conducted by the COMPANY or any of its subsidiaries, or to take any other action not consistent with the good faith of this Settlement and Release Agreement. In the event that during the severance, EMPLOYEE engages in any of the conduct proscribed by this paragraph, EMPLOYEE's severance payments will cease, and Employer will take such legal action as authorized by law or equity 10. This Settlement and Release Agreement shall be governed by and construed under the laws of the State of Connecticut. 5 11. The provisions of this Settlement and Release Agreement are severable, and if any part of it is found to be unenforceable, the other paragraphs shall remain fully valid and enforceable, This Settlement and Release Agreement shall survive the termination of any arrangements contained herein. 12. EMPLOYEE acknowledges that he is entering into this Settlement and Release Agreement knowingly and voluntarily, that he fully understands all of its provisions, and that he has been advised of his right to consult with an attorney prior to signing this Settlement and Release Agreement. This Settlement and Release Agreement constitutes the entire understanding of the parties, and cannot be modified except by a writing signed by both parties. 13. The COMPANY and the EMPLOYEE agrees that, except as permitted by Paragraph 12, or except as permitted or required by applicable Federal, State, or Local law, the COMPANY and the EMPLOYEE will maintain the confidentiality of this Settlement and Release Agreement and make no voluntary statement or take any other action that might reasonably be expected to result in disclosure of, or any publicity concerning, the terms hereof or the consideration paid to him by the COMPANY, except EMPLOYEE may disclose the terms of this Agreement to his spouse, personal attorney and/or accountant for legal and tax purposes. 14. The COMPANY, when asked for a reference concerning the reasons for the EMPLOYEE's separation from the COMPANY, will advise prospective employers that EMPLOYEE voluntarily resigned his employment with appropriate notice on November 6, 1998. On the COMPANY's behalf, no person other than the President & CEO and/or the Vice President of Human Resources shall respond to any reference inquiry. 15. This Settlement and Release Agreement shall not in any way be construed as an admission by the COMPANY that it has acted wrongfully with respect to EMPLOYEE in connection with his employment with or termination of employment from the COMPANY. 16. The COMPANY will provide EMPLOYEE by June 1, 1999 a calculation on the benefit due EMPLOYEE at retirement under the TransPro, Inc. Retirement Plan and the amount earned under the TransPro, Inc. Supplemental Non-Qualified Pension Benefit, both of which shall be reasonably satisfactory to EMPLOYEE. IN WITNESS WHEREOF, the undersigned have executed this Settlement and Release Agreement as of the date first above written. /s/ JOHN C. MARTIN, III February 3, 1999 - ----------------------- ---------------- EMPLOYEE Date By: /s/ JEFFREY L. JACKSON January 27, 1999 ---------------------- ---------------- Name Date Vice President Human Resources ------------------------------ Title EX-21.1 5 EX-21.1 1 EXHIBIT 21.1 SUBSIDIARIES OF TRANSPRO, INC. The following sets forth a list of all the subsidiaries of TransPro, Inc., a Delaware corporation (the "Company"), and the State or other jurisdiction of incorporation or organization of each.
NAME JURISDICTION OF INCORPORATION OR ---- ORGANIZATION ------------ Allen Heat Transfer Products, Inc. Delaware AHTP II, Inc. Delaware CROWN CREW CAB, INC. Delaware GO/DAN Industries, Inc. Delaware GO/DAN de Mexico, SA de C.V. (1) Mexico Radiadores GDI, SA de C.V. (1) Mexico TransPro Indus Ltd. Mauritius Crown-VMS Canada, Ltd. Ontario, Canada EVAP, Incorporated Texas A/C Plus, Incorporated Texas
(1) A wholly-owned subsidiary of GO/DAN Industries. EX-22 6 EX-22 1 SCHEDULE II TRANSPRO, INC. VALUATION AND QUALIFYING ACCOUNTS
PERIOD BALANCE AT CHARGED TO CHARGED TO DEDUCTIONS BALANCE AT BEGINNING OF COSTS AND OTHER END OF (DOLLARS IN THOUSANDS) PERIOD EXPENSES ACCOUNTS (1) PERIOD Year Ended December 31, 1999 Allowance for doubtful accounts $ 2,390 $ 268 $ (238) $ (292) $ 2,128 Allowance for obsolete inventory 5,605 875 (232) (1,525) 4,723 Allowance for tax loss valuation - - 189 - 189 Year Ended December 31, 1998 Allowance for doubtful accounts 3,441 1,394 250 (2,695) 2,390 Allowance for obsolete inventory 5,003 1,629 800 (1,827) 5,605 Year Ended December 31, 1997 Allowance for doubtful accounts 3,378 1,790 - (1,727) 3,441 Allowance for obsolete inventory 4,942 1,299 - (1,238) 5,003
(1) Amounts adjusted in doubtful accounts and inventory were related to acquisition reserves and charged to goodwill. Amounts for tax valuation allowance were charged to deferred taxes. 22 EX-23 7 EX-23 1 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the registration statement of TransPro, Inc. on Form S-8 (File No. 33-80871) of our report dated February 14, 2000, relating to the financial statements, which appears in the Annual Report to Stockholders, and which is incorporated by reference in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report dated February 14, 2000 relating to the financial statement schedule, which appears in this Form 10-K. /s/ PRICEWATERHOUSECOOPERS LLP - ------------------------------ PricewaterhouseCoopers LLP Hartford, Connecticut March 15, 2000 EX-27 8 EX-27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TRANSPRO, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1999 JAN-01-1999 DEC-31-1999 222 0 43,817 2,128 85,346 135,323 103,166 62,539 185,895 41,749 61,928 0 0 66 74,405 185,895 261,577 261,577 197,379 197,379 52,566 268 4,444 6,920 104 6,816 0 0 0 6,816 1.03 0.96
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